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Economic News, Data and Analysis

Economy’s Gains Fail to Reach Most Workers’ Paychecks

For labor day, two of my EPI colleagues have put together some updated wage numbers:

Economy’s Gains Fail to Reach Most Workers’ Paychecks
by Jared Bernstein and Lawrence Mishel
Research assistance from James Lin
As of Labor Day 2007, the economic recovery that began in 2001 is six years old, and the economy has consistently expanded over this period. Productivity growth, though slower of late, has been particularly strong, and after a long, slow start, employment has been consistently growing, albeit slower than past recoveries.
But most American workers have not shared in the growth and prosperity they have been helping to create. Surely, one measure of the success of an economic growth period is how much of that growth finds its way into workers’ paychecks. In a period of sharply rising inequality, however, this is no “slam dunk.” In fact, as much of the data in this brief reveal, many workers’ wages have been stagnant for a number of years, after adjusting for inflation, particularly those at the middle and lower end of the pay scale. For example, while productivity is up nearly 20% since 2000, the real median hourly wage is up 3% overall and 1% for men, with none of this growth occurring over the three-and-a-half years since 2003. At the top of the wage scale–at the 95th percentile–real wages are up 9%.

In recognition of Labor Day, this report examines the wage and employment trends in the 2000s and finds:
* Real wages have been stagnant for many workers in the 2000s. After rising quickly in the second half of the 1990s, most workers real wages have been stagnant in the 2000s, especially since 2003. This result holds for a wide variety of wage and compensation measurements, including those that add the value of fringe benefits.
* The productivity/wage gap has grown. The gap between productivity growth and workers wages, especially those of middle- and low-wage workers, is at a historically high level.
* Wage growth has been unequal. Wage growth in the 2000s followed a highly unequal pattern, and higher-wage workers gained the most ground.
* Despite low unemployment, workers’ bargaining power has diminished. Though the unemployment rate has been low in historical terms, it does not capture the erosion of employment relative to the population caused by weak growth in (or withdrawal from) the labor force over the past few years. The bottom line is that many workers still lack the bargaining power to claim their fair share of the productivity growth they themselves are helping to create. This is partly due to weak job creation over the course of this recovery.
* More downward pressure on wage growth is likely. The recent slowing of productivity growth and rising unemployment are likely to place further pressure on most workers’ real wages in the near to medium terms.

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Filed under: Economics

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