Wage Stagnation in Nine Charts

[xchrom]

1. The cost of inequality to middle-class households

The cost of unequal growth to middle-income households

This figure shows that the stakes of rising inequality for the broad American middle class are enormous. The figure compares the income growth of the middle three-fifths of American households since 1979 to their income growth had there been no growth in inequality. In 2007, the last year before the Great Recession, the average income of the middle 60 percent of American households was $76,443. It would have been $94,310, roughly 23 percent (nearly $18,000) higher had inequality not widened (i.e., had their incomes grown at the overall average rate—an overall average buoyed by stratospheric growth at the very top). The temporary dip in top incomes during the Great Recession did little to shrink that inequality tax, which stood at 16 percent (nearly $12,000) in 2011.

.538

2. Wage trends of the last three decades

The gap between the growth of productivity and that of a typical worker’s pay

Slow and unequal wage growth in recent decades stems from a growing wedge between overall productivity—the improvements in the amount of goods and services produced per hour worked—and the pay (wages and benefits) received by a typical worker.

The figure shows that in the three decades following World War II, hourly compensation of the vast majority of workers rose 91 percent, roughly in line with productivity growth of 97 percent. But for most of the past generation (except for a brief period in the late 1990s), pay for the vast majority lagged further and further behind overall productivity. From 1973 to 2013, hourly compensation of a typical (production/nonsupervisory) worker rose just 9 percent while productivity increased 74 percent. This breakdown of pay growth has been especially evident in the last decade, affecting both college- and non-college-educated workers as well as blue- and white-collar workers. This means that workers have been producing far more than they receive in their paychecks and benefit packages from their employers.

.538

[Bigmack]

1. I see the 538, but do you have the link for this? nt

[Igel]

2. Some of the interpretation doesn't necessarily follow.

Might be true in some cases. Might not be. Case not made--and should be.

In other cases the interpretation is just wrong.

Take an obvious example:

"This means that workers have been producing far more than they receive in their paychecks and benefit packages from their employers."

Yes and no. The author goes from "hourly wage" to "total compensation." But precisely at that time the concern was that most compensation increases was happening in the non-wage part of compensation. Health insurance costs soared and it's a bigger "bang for your buck" to have the employer just boost health insurance contributions. That additional $1000 isn't taxed as it would be if it were income. This was also when stock options were given in some jobs--again, non-wage.

"The Joint Committee on Taxation has estimated that the total federal tax expenditure associated with the exclusion for employment-based health insurance was $246 billion in 2007, consisting of $145 billion in individual income taxes and $101 billion in payroll taxes." http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/99xx/doc9924/12-18-keyissues.pdf

That $246 billion was in "lost" tax revenue. It's not the amount "added" to wages--that's going to be well over $500 billion, and it's going to be greater for middle class than for lower class employees. (Simply because there's a maximum deductible amount--after a certain level, it doesn't doesn't matter, and lower-wage earners don't get that ceiling.)


It also pays to note that the graph uses "households" at a time when family structure was changing. More single-person households meant far fewer two-income households. So through the '70s and '80s we had an increase in two-earner households, that really started to change in the very late '90s and the rate of change held fairly constant throughout the '00s. My household brings in over $100k/yr. In the event of divorce, suddenly we have two $50k/yr households. Most of my neighbors have households in the range of $50-70k/yr, if the data I found online a while back is correct: Every divorce is followed by selling the house, because those two-earner households may pay the mortgage, but divide the income and the house is unaffordable. (Same with a coworker: She just divorced, income went from >$100k/yr to $60k/yr, but they live in a nicer neighborhood.)

It sucks but another trend over the last 30 years is a change in who marries who and who stays married. When I was a kid and in college most college grads married high-school grads--any given household was likely to have a relatively high earner and an earner making significantly less. Now college grads mostly marry college grads. If you have one high wage earner you're more likely to find a second high wage earner; if you have a low-wage earner you're likely to find a second low-wage earner. (But if you find a low-wage earner, you're also more likely to find divorce. The stats show better correlation if you look at education and not wages, so there's feedback that muddies the stats. It doesn't help that even controlled studies also find that marriage tends to produce higher wages, at least last time I dipped into that bit of academic literature.)

Things are never as simple as they appear. We must make things as simple as possible, not simpler than possible. And that's never more essential than when we're talking policy. If you talk scientific theory and you make things simplistic, you screw up a lot of grant funding and experiments; if you decide policy based on simplistic explanations, you screw up a lot of lives.