Real Hourly Wage Growth: The Last (Lost) Generation

with Larry Mishel, cross-posted from EPI, Working Economics blog

The last generation has been marked by a stark disconnect between productivity growth (up 80 percent between 1973 and 2011) and slow or stunted wage growth. The real hourly wages of the median worker grew only 4 percent over this span, and real hourly compensation (wages and benefits) grew only 10.7 percent. This graphic parses this dismal wage record by gender, by wage decile, and by business cycle.

For all workers, the erosion of real wages was broad and uneven from 1973 through 1995. The upturn of 1995–2000, the latter part of the 1989–2000 business cycle, brought a brief respite of across-the-board wage growth, some of which spilled past 2000 (although the wage growth from 2000–2007 skews much more to higher earners). The current recession (2007–2011) brought with it wage losses for most workers.

For men, the pattern is even starker. Real wages begin falling for low-wage men in the mid-1970s, and this spread across all but the highest percentiles through 1979–1989 and through the first half of the 1990s (1989–1995). The late 1990s brings some relief, but this is short-lived: wage growth grinds to a halt in 2000–2007 and then loses ground—for all but highest earners—from 2007–2011.

For women, wage growth has been generally stronger. All wage levels show growth of at least 10 percent over the full 1973–2011 span, although the gains at the top (60 percent for the 90thpercentile, more than 70 percent for the 95th) are much more dramatic. As with men, the gap between low– and middle earners and between middle– and high earners grows in the 1980s. The 1990s (especially 1995–2000) yields gains for all wage levels with a growing gap between middle– and high earners (but not between low– and middle earners). Finally, the last decade shows stagnant or falling wages for most workers.

We can see, in these demographic and chronological patterns, a number of factors at work. High unemployment in the early– and mid-1980s undercut the prospects of all workers at the median or below. Conversely, the tight labor markets of the 1990s delivered general and substantial gains. The divergent records of these two eras were also shaped (especially for men in the middle wage groups) by declining unionization in the 1980s and beyond, and (especially for low-wage women) by the declining value of the minimum wage throughout the 1980s. And, across the full era, globalization and industry shifts pushed job growth into low-wage services and further undermined middle-class wages.

The pattern, then, is pretty clear: Low– and middle-wage men and women lose ground across this era—a pattern interrupted only by the sustained growth, low unemployment, and minimum wage increases of the late 1990s. The growing wage inequality fed greater household income inequality (wages and salaries make up more than three-quarters of median family income) as those at the top received disproportionate wage gains. And the lessons are clear as well: Shared prosperity rests on policies and institutions (collective bargaining, a decent minimum wage, strong labor standards, etc.) that sustain the bargaining power of workers. In the absence of those institutions, only exceptional stretches of full employment have interrupted the failure of the wages, incomes, and living standards of ordinary Americans to benefit from the fruits of economic growth.

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