Commentary | Budget, Taxes, and Public Investment

Workers have less to celebrate this Labor Day

The U.S. unemployment rate reached 9.7% in August and millions of workers who have kept their jobs have seen hours, wages, or some other form of compensation such as retirement plan contributions, cut. In a new Briefing Paper published ahead of the Labor Day weekend, EPI President Lawrence Mishel and Economist Heidi Shierholz discuss how what’s bad for the worker is bad for the overall economy. These lost wages, the authors note, do not just lower living standards, they threaten to further delay an economic recovery.

“It will be a drag on the economy,” Mishel and Shierholz write in the paper, The Recession’s Hidden Costs. “Wage growth is central to the growth of household consumption. That consumption is required if we are going to lift the demand of goods and services, a demand that is essential for a robust economy.”

As the paper outlines, even as the pace of job loss has slowed in recent months, wage growth has fallen dramatically. Wages, which grew at an annualized rate of 4.0% between 2006 and 2008, fell to just 0.7% over the past three months. This wage deceleration has occurred for both high school and college graduates; among women with a college degree, wages grew by just 0.3% over the past year.

Furloughs, in which workers are required to take an unpaid vacation, are on the rise: recent surveys have found that 17% of companies have imposed furloughs on their workers. More than 20% of companies have suspended their contributions to 401(k)s and similar pension plans.

Also in advance of Labor Day, EPI has assembled a Fact Sheet with some statistics on workers and the compensation they receive. Some highlights: Nearly one in six workers are now unemployed or underemployed. The unemployment rate among men has already passed 10%. Many workers are losing health care coverage for themselves or their dependents. In fact, among people under 65 in the bottom 20% of all incomes, only 21.9% have employer-sponsored health insurance. Between 2000 and 2007, some 3.4 million children who were insured through their parents’ employers have lost coverage. Half of all people nearing retirement age have a 401(k) balance of less than $40,000. For those who do have health insurance, premiums have risen some 119% since 1999.

It’s worth noting that many workers began seeing wage growth slow before the recession, even though their productivity was soaring. Between 2000 and 2007, the average American worker’s productivity rose 19.2%, yet more of those gains are going to top managers. Adjusted for inflation, average wages have grown just 0.7% per year since June 2000. In 1979, the ratio between the average CEO’s pay and the typical workers pay was 27 to 1. By 2007, it had widened to 275 to 1.