In June 2022, American workers made an average of
$27.45 per hour.
In 1972, the same workers earned an average of $3.88
per hour. A chart like this might make it seem like
America has come a long way in terms of wage growth.
But when adjusted for inflation, wages have
remained virtually unchanged over the last 50
years, with workers today earning just $0.12 more than
they did in 1972.
When the average American is not seeing his or her living
standards increase over a period of decades, that's
something that should concern us all.
With inflation at its highest since 1981,
Americans are feeling the pain of slow wage growth.
Two thirds of American workers said that inflation
has outpaced any salary gains made in the past year.
Now, because of the inflation, I can't even make
the monthly payments.
So I had to pick extra hours with my elderly care
job.
But some economists argue that the concept is merely a
myth that politicians use to promote their careers.
Politicians win elections by promising to fix something
that is supposedly wrong in people's lives.
And so I think there is a bit of a political cynicism
and calculus involved in the wage stagnation debate
and promises to fix the supposed problem.
So just how real is wage stagnation in America today
and what does it mean for American workers?
Wages in America have stagnated since the early
1970s. But it was 1979 when the gap between workers
productivity and wage began to substantially increase.
Between 1979 and 2020, workers wages grew by 17.5%,
while productivity grew over three times as fast at
61.8%.
It's not true that wages haven't grown at all.
They have, but they haven't grown as quickly as they had
in the past.
Since the eighties, the economy has changed a lot.
We've gone really from an industrial era to a tech era
. When you have these big changes to the economy,
sometimes the gains are not equally felt, but it really
has an impact on everyone's lifestyle and everyone's
wages.
Wage stagnation is worse for lower and middle income
earners. The bottom 90% of American workers saw their
annual wages increase by 28.2% from 1979 to 2020,
while wages for the top 1% increased by 179.3%.
Meanwhile, the top 0.1% saw an astonishing growth of
389.1%.
Real wages, which means that after we adjusted for
inflation, is not the reason that much since the
late 1970s.
We know that, on the other hand, inequality did rise
over most of this period.
I've been working about since the nineties when I
came here. That's about 30 years on and off.
And there was very little raise for domestic workers
in general.
Now, after the 2020, with the inflation, I feel like
the income stayed the same.
People lost some of the jobs, like in my
experience, and we have to struggle to find different
or secondary job or second part time job just to
maintain the monthly expenses of our daily
living. It's very hard.
Despite causing severe disruption to the U.S.
labor market, the COVID pandemic has led to
surprising wage gains across industries.
COVID has actually seen a significant acceleration in
wage growth, particularly for low wage earners.
This reflects a really serious tightness in the
labor market due to excessive U.S.
demand, whether it's from the Federal Reserve or
through fiscal stimulus payments, but also
restrictions on labor supply, immigration
restrictions, early retirements and, of course,
illness or deaths.
So that has driven substantial wage gains.
How to tell whether that's the new reality?
And that's why I want to be cautious.
Did it change our life forever and maybe for the
better in terms of labor market and wages?
We have to wait and see.
Automation is one explanation for wage
stagnation in America.
The McKinsey Global Institute predicts that 45.3
million workers will lose their jobs due to
advancements in technology by 2030.
Automation has been a really big factor so far in
especially manufacturing jobs.
So before, you built a car, you used machines, but there
was a lot of sort of hands on work with it.
Now much more of that is done with machines and you
have to be a lot more skilled to use those
machines, which means that a lot of the routine jobs
have disappeared or they're very poorly paid.
Over the next two or three decades, a lot of economists
believe that there's going to be a lot of disruption in
the labor market because of new automation.
And even college-educated workers, that financial
assistance and accounting and even some parts of
medical diagnoses will be done by machines with
artificial intelligence, so a lot more of us might be
facing that competition from these machines.
Globalization is another reason for wage stagnation,
forcing domestic workers to compete against unfair
competition.
And in a lot of countries, workers are paid a lot less.
So now, particularly if you don't have a lot of very
specialized skills, you're competing in that market.
And that means that a lot of sort of routine office
work and manufacturing work is going to go overseas.
But that isn't all bad news for Americans.
It's important to remember that meant goods got a lot
cheaper. It's one of the reasons we had such low
inflation since the eighties.
And everyone benefited from that.
But that said, I think economists like me were a
little cavalier that we saw the economy growing and
people doing better about the people who were hurt.
And we still don't really have good solutions to help
people like that.
Economists suggest that labor dynamism also played a
bigger role than expected.
American workers today are changing jobs less
frequently than before, even though job switching
leads to strong take-home pay growth.
While some Americans don't switch their jobs out of a
desire for stability, others can't because there
is nowhere else to go.
In many local markets, companies use the lack of
competition to suppress their workers wages.
The notion of monopsony power is that you have a
local labor market.
Let's say that you live in a particular city or any
particular town, and in that town there is one
employer, and given that there is only one employer
there, then they set the wages in a way that's lower
than what you would otherwise expect them to
pay. This was a fully competitive market.
60% of U.S.
labor markets are considered highly concentrated, meaning
a few employers are competing for local workers.
Just 10% more workers in an area can lead to about a 1%
reduction in posted wages.
I've asked a couple of families over the years,
that was still before Corona, for $10 raise and
they just declined.
They said they'll find somebody cheaper and we
practically lost the job.
In case after case, you see that government policies
were implemented to discourage labor dynamism
and to discourage workers from moving to a better job
or moving to a better town or city to improve their job
prospects. And this inevitably will weigh on
wage growth over time.
Companies can also play a direct role in stifling the
competition with methods like non-compete agreements.
Roughly half of private sector U.S.
businesses that responded to the EPI's survey said at
least some of their employees are in non-compete
agreements, meaning some 36 to 60 million private sector
workers in America are subject to non-compete
agreements.
The non-compete clause would lead you to stay with your
current employer, not to move, because the
consequences would be that it would be more difficult
for you to find employment.
And if you are less likely to leave the job, you'll be
tied in or locked in to the current employer, which
means that the likelihood that that employee would
keep getting his or her lower earning is much
higher. There's rationale for it at the very high end
of the income distribution of the skill set, but I
don't see much of a reason to have it for rank and file
employees.
Meanwhile, unions that originally fought for higher
compensation have drastically lost its power
over the years.
Union membership in the U.S.
fell from 20% of American workers in 1983 to just
10.3% in 2021.
Workers in unions typically earn higher wages, about
10.2% more compared to similar non-union workers,
thanks to methods such as collective bargaining.
In those industries where unionization stayed somewhat
high, the effect of market power or monopsony of the
employer on wages was muted.
So the unions were able to bargain on behalf of the
employees even when they were dealing with large
employers. So wages were less stagnant or didn't
decline as much.
But some suggest that wage stagnation is an issue blown
way out of proportion.
The issue we have in the wage stagnation debate is
that a lot of researchers have been using a certain
inflation metric, the consumer price index, that
really dramatically overstates inflation over
time. So if you look at two periods, you see that those
expenses per CPI have gone up far more than they
actually have.
That means it makes it seem like your wage increase is
much smaller than it really actually is.
You're actually able to buy a lot more with your nominal
wage than these researchers say you can.
So that's why most researchers, including the
Federal Reserve, like to use a different measure of
inflation: the personal consumption expenditures or
PCE. The PCE shows a much more moderate inflation over
the last several decades.
When you apply PCE to nominal wage growth, you
discover much higher wage growth for middle income
workers. In other words, no wage stagnation at all.
And in fact, a pretty nice gain over the last 30 years.
Focusing on broad national data over individual
experiences can create another issue.
They see, Ah, the percentage of low wage professions has
increased. Therefore, we have wage stagnation or
decline. What they don't do is they don't actually look
at the people in those professions and what their
wages have done over time.
So for example, you can have someone who is a
janitor who works for 30 years and actually made
substantial increases in wages and earnings over that
time. That would be lost.
If you just look at janitors overall.
I think it is technically a myth and I think it is
overblown to say that people aren't better off
than they were in the seventies. It's just
patently absurd.
I think everything about our lifestyle and our living
standards are higher.
And even our real wages are technically higher.
But I think there is something to the fact that
wages aren't growing as fast as they used to for
most people. So people don't feel like they're
equally sharing the same prosperity. And I think that
that is a problem that's leading to a lot of social
unrest.
Legislation could help solve some of the biggest issues
causing wage stagnation in America.
There is a limited amount that we can do through
policy when you have big changes in technology,
globalization, forces like that.
But policy can matter a lot.
For instance, things like those non-competes, I think
that's adding to wage stagnation and you shouldn't
have non-competes, particularly for low-skilled
jobs.
We could pass legislation to make it easier for workers
to unionize.
There is a bill called the PRO Act, Protect Our Right
to Organize, that the House of Representatives has
already passed. It's dead in the water in the Senate.
I think we also really need to embrace more of the gig
market, which, so far, I feel like we're trying to
pretend doesn't exist and making it sort of a lower
tier part of the labor market. But is it if we sort
of allow those platforms to offer health insurance, then
I think it could become better quality jobs that are
more dynamic and let people get more the upside risk and
not just the downsides.
The rise of remote work could also be beneficial to
wage growth in local markets.
Some employers are very happy to have their
employees working remotely.
In a way, if you can work remotely, at least you know
when you think about monopsony power, you are
diminishing the monopsony power of an employer
because if you are a talented person, even if you
are in a small town where there's only one or two
large employers, you can work for a global firm that
can be based in any other part of the world or the U.S
. and work remotely and earn a higher wage.
Achieving a fair wage for all Americans is vital in
ensuring the success of the American economy.
There's a basic, not just a basic sense of fairness,
there is something historically we have called
the American Dream.
It attracts immigrants to our shores.
It motivates all kinds of people to innovate and make
the economy productive.
And wages really, in some ways, are a reflection of
the productivity and skills of American workers.
So if wages are stagnating for a whole bunch of people,
that means that we are not becoming as productive a
country as we can be.
That means the whole economy is not working as
well as it can be.