Wages and Living Standards

The Living Standards and Labor Markets team conducts research on the well-being of U.S. workers and their families with the goal of influencing policy makers to adopt policies that are good for working people. Recently the group has weighed in on debates related to minimum wage hikes, updates to the unemployment insurance program, and mandatory sick leave. The team also closely monitors labor market conditions and uses its data expertise to calculate statistics that are not available elsewhere, such as in-depth views of state-level unemployment rates by race, ethnicity, and gender.

While the past 35 years have been marked by generally strong growth in productivity, most working people have not seen comparable gains in their wages and benefits. Essentially, they are being denied a fair share of the growth that they helped create. Unemployment is rising, and wages, depending on how they are measured, are growing very modestly or not at all. Both metrics are key measures of living standards and overall economic vitality that underscore how prosperity is eluding growing numbers of Americans. The current recession has added to the ranks of the jobless and the underemployed, but longer term trends show how wage growth for large parts of the population has stagnated even during periods of economic expansion.

In May of 2009, unemployment reached a 25-year high of 9.4%, while wages, which had held up fairly well at the start of the recession, began to implode. May wages grew at an annualized rate of 1.3%, well below the 3.9% growth shown throughout most of 2008. Weekly wages, however, actually declined as many workers saw their hours cut back, indicating that even those who have held onto their jobs have been hurt by the recession. This collapse of wage growth threatens to dampen consumption and limit the pace of an economic recovery.

There are other troubling data as well. In addition to the 14.5 million Americans who were classified as unemployed in May, millions more were either working part-time but wanted full-time jobs, or were “marginally attached,” a term that refers to jobless people who want to work but have stopped looking for work so are not counted as officially unemployed. As the current recession has progressed, jobs have become harder and harder to find. The most recent data show there are now 5.7 workers for every single job opening in the country. With all these challenges to finding full-time work, more than 25 million Americans — one in six workers — are now lacking the work they want.

And the picture is even bleaker in certain segments of the economy. Among men in the work force, unemployment is now 10.5%. The unemployment rate is well into the double digits for African American and Hispanics workers, and is twice as high for high school educated workers as it is for those with college diplomas. Eight states now have double-digit unemployment. Michigan’s unemployment rate, the worst in the nation, was 12.9% as of April, while California’s stood at 11%. A recent EPI report offered some particularly alarming data for workers in those hardest hit groups and their families. It forecast that unemployment in 2010 could reach 18.1% for African American workers nationally and a staggering 27.8% for African American workers in Michigan. These high rates of joblessness could leave half of all the country’s African American children in poverty, the report said.

All these data fall against a backdrop showing middle- and low-income workers are losing ground, even in more prosperous times. The recession of 2001, for example, was followed by almost two years of continued job loss, and it took four years to return to the number of jobs the economy had supported prior to the recession. Meanwhile, for the first time on record, the real incomes of middle-class families actually declined over the course of the last business cycle from 2001 to 2007. Although gross domestic product (GDP) gains were relatively strong over that time, the very workers who made those productivity gains possible did not see any improvements in their own paychecks.

Further reading:
The State of Working America 2008/2009 provides a comprehensive look at the U.S. labor market and trends in income and employment levels, wages, poverty, and health care coverage for American workers. Every month, EPI economist Heidi Shierholz provides a detailed look at new unemployment data, the most recent of which can be found here. In an April testimony to Congress, Shierholz explained why the almost unprecedented levels of unemployment and long-term unemployment would justify extending unemployment compensation benefits. In The Wage Implosion, Shierholz and EPI President Lawrence Mishel outline the recent collapse of wage growth. Mishel’s presentation, Sounding the Alarm, forecasts particularly high unemployment and poverty for minority groups and their children.