This Labor Day, wage erosion continues to hurt employed workers

Economic Snapshot for September 2, 2009

by Lawrence Mishel and Anna Turner

On Labor Day 2009, American workers will have little to celebrate as they struggle with the recent collapse of hourly wage growth and its effect on their living standards.

The Figure below shows the annual growth rate of private-sector wages including wages of production/nonsupervisory workers for six-month periods from early 2007 to 2009. Wage growth for the entire private sector fell to a 1.3% annual rate between December 2008 and June 2009. Meanwhile, production and nonsupervisory workers—representing about 80% of employment—have seen their annual wage growth slow drastically to 1.4% after a relatively steady growth of 4.0.% from 2007 to 2008.

While inflation declined in late 2008, it has resumed in 2009 at a 2.9% rate that currently exceeds wage growth. This means that inflation-adjusted wages have decreased and family incomes are declining.

Besides collapsing wage growth, employed workers are facing other hardships such as involuntary unpaid leave, or furloughs, and decreased retirement contributions. The sluggish wage growth and furloughs are putting a damper on the much-needed consumption that is required to lift the economy out of this recession and pose a challenge for obtaining a robust recovery.

Source: Mishel, Lawrence, Heidi Shierholz, and Andrew Green. 2009. The Recession’s Hidden Costs: Workers Lucky Enough to Keep Their Jobs Still Feel the Pain in Their Paycheck. EPI Briefing Paper. Forthcoming.