Wage-Setting Mechanism is Broken in the U.S.

The vast majority of American workers have seen their wages stagnate for ten years, a new EPI report finds. In A Decade of Flat Wages: The Key Barrier to Shared Prosperity and a Rising Middle Class, EPI President Lawrence Mishel and economist Heidi Shierholz conduct a comprehensive analysis of wage trends and show that American’s wages have been flat across all job categories and most major demographic groups, including workers with a college degree.  Most Americans have not experienced real wage gains, regardless of occupation, race, ethnicity, or education level.  While, at the same time, corporate profits have soared and the earnings of the top one percent have skyrocketed.

“A decade of flat wages is evidence that the current economic system is not fair to working Americans,” said Mishel. “The economy has been designed to produce these results. Right now, employers hold all the cards. The wage-setting mechanism is broken.”

In the report, the authors analyze both employer-based and household-based survey data to track wage trends, and where possible, compensation trends. Primarily focusing on trends since 2007, the authors use the most up-to-date data—up to the second quarter of 2013. They also discuss longer-run trends, showing that the 2000-2007 business cycle—and especially the recovery years of that business cycle from 2002-2007—produced dismal wage growth. In some cases, they provide data going back to 1979 and demonstrate that last decade of anemic wage growth continued a long-term trend of wage stagnation for most workers.

Other key findings in the report include:

• During the Great Recession and its aftermath (i.e., between 2007 and 2012), wages fell for the entire bottom 70 percent of the wage distribution, despite productivity growth of 7.7 percent.
• Weak wage growth predates the Great Recession. Between 2000 and 2007, the median worker saw wage growth of just 2.6 percent, despite productivity growth of 16.0 percent, while the 20thpercentile worker saw wage growth of just 1.0 percent and the 80th percentile worker saw wage growth of just 4.6 percent.

• The weak wage growth over 2000–2007, combined with the wage losses for most workers from 2007 to 2012, mean that between 2000 and 2012, wages were flat or declined for the entire bottom 60 percent of the wage distribution (despite productivity growing by nearly 25 percent over this period).

• Wage growth in the very early part of the 2000–2012 period, between 2000 and 2002, was still being bolstered by momentum from the strong wage growth of the late 1990s. Between 2002 and 2012, wages were stagnant or declined for the entire bottom 70 percent of the wage distribution. In other words, the vast majority of wage earners have already experienced a lost decade, one where real wages were either flat or in decline.

• This lost decade for wages comes on the heels of decades of inadequate wage growth. For virtually the entire period since 1979 (with the one exception being the strong wage growth of the late 1990s), wage growth for most workers has been weak. The median worker saw an increase of just 5.0 percent between 1979 and 2012, despite productivity growth of 74.5 percent—while the 20th percentile worker saw wage erosion of 0.4 percent and the 80th percentile worker saw wage growth of just 17.5 percent.

“We need a different set of economic policies that lead to good jobs with better wages,” said Shierholz. “Wages should be going up with increased worker productivity, but for most workers, they clearly are not.”

The report suggests policy solutions to push wages up and promote shared prosperity. Mishel said, “Wage growth can be created by lowering unemployment, by increasing the minimum wage and by restoring the bargaining power of workers.”