Two new reports paint grim picture of wage growth, income inequality

Yesterday, the nation celebrated its workers. However, new research finds that most workers face fewer and fewer reasons to rejoice.

Last week, the Economic Policy Institute (EPI) released a new report finding that hourly wages fell in the first half of 2014 when compared to the first half of 2013. And those wages fell for nearly all groups of workers, including those with bachelor’s degrees and higher. This isn’t a new trend, just one that’s quickly heading toward crisis proportions. The report, “Why America’s Workers Need Faster Wage Growth — And What We Can Do About It,” states that between 1979 and 2007, more than 90 percent of American households had incomes that grew more slowly than average income growth.

The report finds that from 1979 to 2013, productivity grew by nearly 65 percent, while hourly pay for more than 80 percent of the workforce grew just 8 percent. Similar to the last four decades, middle class households saw their wages decline over the past year — a trend that the report notes is a central contributor to growing income inequality. Surprisingly, the only group of workers that didn’t experience declining wages in the past year were the lowest wage earners — a finding that the report attributed to state efforts to raise the minimum wage.

“Despite a recovering economy and growing productivity, employers are not putting anything more in their employees’ paychecks. Over the past forty years, corporations, and their CEOs and lobbyists, have used public policy to stack the deck in their favor,” said Elise Gould, the report’s author, in a news release. “The only way to strengthen the middle class is to grow wages, and for that we need policies that deal workers a stronger hand.”

The EPI report also found that if income inequality had not grown between 1979 and 2007, middle-class incomes in 2007 would have been $18,000 higher. At the root of many of the report's findings is a growing divide between increased productivity and wages — in other words, workers aren't reaping the financial benefits of the economic gains they're helping to produce. So who is reaping those benefits? Gould writes that a “significant portion of it went to higher corporate profits and increased income accruing to capital and business owners. But much of it went to those at the very top of the wage distribution.”

Perhaps most interestingly, Gould rebuffs the popular theory that wage inequality is fueled by a shortage of skilled or college-educated workers. Instead, she points to policy as the main driver of inequality, noting that even workers with college and advanced degrees are experiencing wage stagnation. She writes:

Importantly, this wage slowdown is not simply the sad outcome of inevitable and irreversible changes in the economy (e.g., technological change or the “flattening” of the global economy). Instead, policy changes that have shifted bargaining power from workers to corporations and CEOs have played a large role.

The list of policies that impact wages is long—much longer than generally realized. For example, macroeconomic stabilization policy (fiscal and monetary and exchange rate policies), regulatory policy (especially financial regulation), policies concerning corporate governance, and tax policy all have significant impacts on wages.

However, labor market policies and business practices have also had large, though often underappreciated, potential impacts on wages. While this set of policies and practices includes many discrete parts, the common thread of the past generation is that practices, institutions, and standards that have boosted bargaining power for low- and moderate-wage workers have been targeted for weakening—and have been replaced by policies that put more leverage in the hands of those with the most economic power.

Another report on wage growth released last month was from the National Employment Law Project (NELP), which found that wage declines continued for each quintile in 2012 and 2013. In “An Unbalanced Recovery: Real Wage and Job Growth Trends,” NELP found that across all occupations, real median hourly wages declined by 3.4 percent between 2009 and 2013, with lower- and mid-wage earners experiencing greater declines than higher-wage earners. The report found that declines in real median hourly wages were especially pronounced among some of the lowest-paying occupations, such as restaurant cooks, home health aides, retail workers and house cleaners. And it’s those types of jobs that are growing the fastest: NELP reports that in the last year, lower-wage industries accounted for 41 percent of employment growth. In fact, there were nearly 1.2 million fewer jobs within the mid- and higher-wage industries today than before the recession.

Unfortunately, most Americans aren’t optimistic about the nation’s economic future. According to a new national survey from researchers at Rutgers University, seven in 10 people believe the impacts of the recession are permanent, which is up from only half of survey respondents just a few years ago. The survey also found that only one is six Americans thinks the next generation will inherit better job opportunities, and most Americans do not believe the economy has improved. A majority of respondents said American workers are “not secure in their jobs” and “highly stressed.” The report noted that many of the survey responses stemmed from participants' real-life experiences.

All of these recent findings remind me of a fantastic article published earlier this summer in Politico — “The Pitchforks Are Coming…For Us Plutocrats.” If you haven’t read it, it’s definitely worth the time. The author is billionaire businessman Nick Hanauer, and it’s such a compelling perspective on income inequality that I think it's quite appropriate to end this round-up of wage findings with a quote from Hanauer's article:

At the same time that people like you and me are thriving beyond the dreams of any plutocrats in history, the rest of the country—the 99.99 percent—is lagging far behind. The divide between the haves and have-nots is getting worse really, really fast. In 1980, the top 1 percent controlled about 8 percent of U.S. national income. The bottom 50 percent shared about 18 percent. Today the top 1 percent share about 20 percent; the bottom 50 percent, just 12 percent.

But the problem isn’t that we have inequality. Some inequality is intrinsic to any high-functioning capitalist economy. The problem is that inequality is at historically high levels and getting worse every day. Our country is rapidly becoming less a capitalist society and more a feudal society. Unless our policies change dramatically, the middle class will disappear, and we will be back to late 18th-century France. Before the revolution.

And so I have a message for my fellow filthy rich, for all of us who live in our gated bubble worlds: Wake up, people. It won’t last.

Kim Krisberg is a freelance public health writer living in Austin, Texas, and has been writing about public health for more than a decade

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