The nation’s high unemployment rate captures the headlines with each monthly jobs report, yet many Americans may be surprised to learn that real earnings, when adjusted for inflation, have declined across most industries and sectors since the Great Recession. Since 2002, in fact, it’s effectively been a lost decade for workers.
Equally troubling, real wages are now about the same level as they were in December 2005. Put another way, wages have clawed back from the Great Recession only to the level of seven years ago.
“The recession was unprecedented, and the stagnation of wages has really been going on for some time,” said Martin Kohli, the chief economist of the New York office of the Bureau of Labor Statistics.
“If you are unemployed or underemployed, that is the most important issue,” he said. “But if you’re working, and your income has gone down, or you haven’t had a wage increase in a number of years, that problem is the bigger issue for you.”
The problem makes recovering from the Great Recession harder, he said, because without wage growth, it’s harder for Americans to pay down their debts.
In fact, real wages have been on a mostly downward slope for more than 40 years.
Researchers at the Hamilton Project, part of the center-left research center the Brookings Institution, recently calculated that the median working-age man with a job earns about 4 percent less, when adjusted for inflation, than he did in 1970.
The numbers look better for women, but they tell a different story, since women historically numbered fewer in the workforce and earned less the farther back you go.
There are many explanations for the declining earnings.
One is that the Federal Reserve successfully tamed inflation, so wages aren’t racing to keep pace with rising prices. Another is the decline in labor unions, whose members enjoyed higher wages and better benefits.
Yet another explanation is that productivity – a worker’s output per hour – has improved greatly thanks to computers, automation and other breakthroughs. Productivity’s role in falling real wages is a subject of debate in economic circles, partly because workers used to share in the benefits of rising productivity but have shared less so over the past decade.
“Since 2002, few have seen wage growth. . . . This idea of a ‘lost decade,’ it’s already happened. We’re well into our next lost decade,” said Heidi Shierholz, a labor economist at the Economic Policy Institute, a liberal research center. “A key thing is that from the 1970s up to 2000, middle income . . . families didn’t get their fair share, but they still saw some growth. Since 2000, nothing.”
From the end of the 2001-02 recession to the start of the Great Recession in late 2007, the United States witnessed the weakest business-cycle recovery record for job growth, Shierholz said.
For reasons that economists don’t fully understand, the only occupational category that’s shown a significant increase in wages since December 2005 is office and administrative workers. Virtually every other occupational group is below the 2005 level or is 1.5 percentage points or less above that 2005 level.
Some conservative economists argue that wages alone don’t tell the whole story on workers’ well-being.
“Consumption might be an even better measure. People may experience short ups and downs in their income stream, but consumption decisions are based on incomes over a lifetime,” said Aparna Mathur, a researcher at the American Enterprise Institute, a free-market research center. “If you look at consumption, you see that inequality hasn’t changed a lot over the last 30 years. You don’t see the widening of inequality in the consumption tables.”
What the index misses, Mathur said, is government transfer programs. This includes everything from the earned income tax credit and several other state and federal tax preferences to food and medical assistance for single mothers and poor families. The poor have seen their spending power rise, Mathur said, despite the fact that they’re on the lower rungs of the income ladder.
“You see a narrowing of the gap there. People in the lowest income, households earning less than $20,000, are still able to afford things like computers, printers and microwaves,” she said, suggesting that total expenditures on food, clothing and entertainment haven’t fallen. “People’s standards of living have been going up over time.”
For veteran economist Neil Dutta, the head of economic research at Renaissance Macro Research, the answer to why wages have remained flat for so long isn’t complicated.
“To me, it’s very simple. There is just such a massive amount of slack in the labor market. You are getting less incrementally in earning power for each job created . . . that’s across the board, across industries,” Dutta said.
That’s a fancy way of saying that with so many Americans out of work or looking for better jobs, employers have the upper hand.
“This is a very depressed labor market. . . . When you have that many people competing for every job that’s available, it’s going to keep wages” flat, Dutta said.