Is weak pay growth the new normal?

Executive Summary

Is wage stagnation over? Recent upticks in median household income suggest the problem might be lessening. But at a time when the U.S. labor market is healthy and adding jobs at a steady clip, wages for many workers remain flat. Some economists assert that changes in income distribution have distorted the picture: Average income is rising, but more is going to those at the top, so many in the middle are suffering. Others dismiss stagnation as overblown, a negative effect of the Great Recession that is now history. As the economists debate, many Americans are asking why it seems they can’t get ahead, and politicians are responding to their angst. Among the key takeaways:

  • Tepid wage growth has been implicated as one cause of the U.S. economy’s inability to grow at a more robust rate.

  • Productivity, historically a driver of higher pay, has flattened out—and has ceased moving in tandem with wages in any case.

  • The debate over wage stagnation has intersected with calls for lower U.S. corporate tax rates as a possible engine for pay increases.

Resources

Bibliography

Books

Acemoglu, Daron, and James Robinson, “Why Nations Fail: The Origins of Power, Prosperity, and Poverty,” Crown Business, 2012. Two economists—Acemoglu from the Massachusetts Institute of Technology and Harvard University’s James Robinson—analyze 15 years of research on why some nations are rich and some are poor.

Ford, Martin, “The Rise of the Robots: Technology and the Threat of a Jobless Future,” Basic Books, 2015. A technology entrepreneur and artificial intelligence expert warns about the growing number of skilled workers whose jobs will be replaced by machines.

Gordon, Robert J., “The Rise and Fall of American Growth: The U.S. Standard of Living Since the Civil War,” Princeton University Press, 2016. A Northwestern University social scientist offers a riveting history of America’s economic transformation between 1870 and 1970 and explains why we’re unlikely to see this kind of growth again.

Milanovic, Branko, “The Haves and the Have-Nots: A Brief and Idiosyncratic History of Global Inequality,” Basic Books, 2011. A World Bank economist provides an entertaining history of inequality in the world.

Oliver, Melvin L., and Thomas M. Shapiro, “Black Wealth/White Wealth: A New Perspective on Racial Inequality,” Routledge, 2006. A classic exploration of wealth, race and income; the authors offer suggestions on how to close the racial gap.

Piketty, Thomas, “Capital in the 21st Century,” Harvard University Press, 2014. A French economist writes a sweeping best-seller about rising inequality and demonstrates what’s happened to average income for most workers.

Stiglitz, Joseph E., “The Price of Inequality: How Today’s Divided Society Endangers Our Future,” W.W. Norton & Company, 2012. A Nobel Prize-winning economist argues that the United States is in peril if it doesn’t deal with inequality and offers policy suggestions.

Articles

Blasi, Joseph, “Profit sharing was supposed to be a silver bullet for middle-class success. What happened?” Salon, Sept. 7, 2015, http://tinyurl.com/z8rqcwx. An economist’s take on why profit-sharing hasn’t worked as hoped.

Cassidy, John, “The Great Productivity Puzzle,” The New Yorker, Aug. 10, 2016, http://tinyurl.com/jg3vsoq. A New Yorker writer explains what has happened to productivity in recent years.

Feldstein, Martin, “Are U.S. Middle-Class Incomes Really Stagnating?” Project Syndicate, July 30, 2015, http://tinyurl.com/o7eocd3. A conservative Harvard economist offers a contrarian view on income stagnation.

Greenhouse, Steven, “The Mystery of the Vanishing Pay Raise,” The New York Times, Oct. 31, 2015, http://tinyurl.com/j32q9u2. A look at the factors causing wage stagnation.

Hassett, Kevin A., and Aparna Mathur, “The Cure for Wage Stagnation,” The Wall Street Journal, Aug. 14, 2016, http://tinyurl.com/zj8m5el. Two economists argue that lowering the corporate tax would boost wages.

Reports and Studies

Autor, David H., et al., “Trade Adjustment, Worker Level Evidence,” Quarterly Journal of Economics, December 2014, http://tinyurl.com/ja2zqgw. Four economists look at the impact of international trade on earnings, concluding that American workers in industries hard hit by imports suffered the biggest losses.

Bier, David, “Immigrants and Wages: Americans Face Less Competition Since 1980,” Niskanen Center, Feb. 23, 2015, http://tinyurl.com/jlaukwn. A Cato Institute analyst argues that immigration since 1980 has not hurt U.S. workers, so the blame for lower wages must lie elsewhere.

Bosworth, Barry B., “Sources of Real Wage Stagnation,” The Brookings Institution, Dec. 22, 2014, http://tinyurl.com/jrw6r57. A Brookings economist takes a look at real wages and investigates whether a change in labor’s share is the reason for wage stagnation.

Goldin, Claudia, and Lawrence Katz, “Long-Run Changes in the U.S. Wage Structure: Narrowing, Widening, Polarizing,” National Bureau of Economic Research, November 2007, http://tinyurl.com/jabdja9. Two Harvard labor economists show how wages are changing in the United States.

Gould, Elise, “Wage inequality continued its 35-year rise in 2015,” Economic Policy Institute, March 10, 2016, http://tinyurl.com/gpmkz9d. The whys and hows of wage inequality are documented by a liberal think tank.

Katz, Lawrence, and Alan Krueger, “The Rise and Nature of Alternative Work Arrangements in the United States, 1995-2015,” National Bureau of Economic Research, September 2016, http://tinyurl.com/z4mw2b2. Two Harvard economists describe the rise in alternative work arrangements, which have accounted for most of new job growth.

Katz, Lawrence, and Robert Margo, “Technical Change and Relative Demand for Skilled Labor: The United States in Historical Perspective,” National Bureau of Economic Research, February 2013, http://www.nber.org/papers/w18752. Two labor economists document the hollowing out of middle-skill (artisanal) jobs during the 1900s, and show how these were replaced by lower-skill (to work machinery) and upper-skill white-collar jobs.

Naidu, Suresh, and Noam Yuchtman, “Labor Market Institutions in the Gilded Age of America,” Economic History, Working Paper, National Bureau of Economic Research, March 2016, http://tinyurl.com/jg2wlan. Two National Bureau of Economic Research economists provide a detailed study of wages through history.

Rose, Stephen, “Beyond the Wage Stagnation Story: Better Measures Show America’s Workers Doing Better Than Previously Reported,” Urban Institute, August 2015, http://tinyurl.com/jbxg84j. A George Washington University economist debunks recent stories of wage stagnation.

Wilson, Valerie, and William M. Rodgers III, “Black-white wage gaps expand with rising wage inequality,” Economic Policy Institute, Sept. 20, 2016, http://tinyurl.com/hkpxbe4. A study of how and why the racial wage gap is expanding and what to do about it.

The Next Step

Closing the Pay Gap

“Gender pay gap report: Women won’t earn as much as men for 170 years,” Chicago Tribune, Oct. 26, 2016, http://tinyurl.com/jng9evb. The global pay gap between men and women could continue until 2186 if current trends persist, according to a report from the World Economic Forum.

Swanson, Ana, “There’s a devastatingly simple explanation for America’s economic mess,” The Washington Post, Oct. 7, 2016, http://tinyurl.com/z4p9rsc. New research from Federal Reserve economists blames demographics for America’s stagnating economy and low wages.

Zumbrun, Josh, “In Advanced Economies, Two-Thirds of Population Have Seen Incomes Stagnate, Study Shows,” The Wall Street Journal, July 13, 2016, http://tinyurl.com/zrmdsgn. Two-thirds of the populations in the world’s most advanced economies earn the same or less than people similarly situated a decade ago, according to a new McKinsey Global Institute study.

Global Economies

“Middle 60% India can help GDP growth to 10%: Study,” Economic Times, Oct. 7, 2016, http://tinyurl.com/hp9ndr9. A report from the Mastercard Centre for Inclusive Growth predicts that transforming the middle 60 percent of India’s income spectrum could help the country’s economic growth by 8 to 10 percent a year.

Grant, Will, “Indians paid 10 times more than Cuban counterparts,” BBC, Nov. 1, 2016, http://tinyurl.com/z77gsjs. Indian workers brought to Cuba to work on a hotel project are being paid about 10 times more than their Cuban counterparts due to strict regulations on how much foreign companies can pay Cuban employees.

Zhang, Maggie, “Competition for white-collar jobs eases in China and wages continue to rise in third quarter,” South China Morning Post, Oct. 27, 2016, http://tinyurl.com/zfkzall. Average salaries rose and competition for white-collar jobs lessened in China in the third quarter, according to an industry report.

Policy Fixes

Hall, Gina, “Why fast food chains have raised pay even before minimum wage votes,” Chicago Business Journal, Oct. 31, 2016, http://tinyurl.com/hskxoke. Several fast-food chains, including Sonic Drive-In, Starbucks and McDonald’s, increased wages ahead of ballot initiatives on bolstering entry-level workers’ paychecks.

Levine, Marianne, “White House details sweeping measure to raise wages,” Politico, May 17, 2016, http://tinyurl.com/jo5p6c8. The White House rolled out a Labor Department regulation on overtime pay that will allow President Obama to raise wages for an additional 4 million workers without increasing the federal minimum wage.

White, Gillian B., “Immigrants or Executives: Who’s to Blame for Wage Stagnation?” The Atlantic, Jan. 13, 2016, http://tinyurl.com/hjwapm8. President Obama’s final State of the Union address said corporations’ prioritizing of shareholders over workers is a major cause of wage stagnation.

Racial Inequality

Nguyen, Minh, “Wage Gap Between Races, Genders Persist as Asian Men Top Average Earnings: Report,” NBC News, July 1, 2016, http://tinyurl.com/zxx7uaq. Asian men are the only racial group to earn more than white men, according to a Pew Research Center analysis of Bureau of Labor Statistics data.

Surowiecki, James, “The Widening Racial Wealth Divide,” The New Yorker, Oct. 10, 2016, http://tinyurl.com/gtgyehu. It would take 228 years at current growth rates for black Americans to have as much wealth as white Americans have today, according to a recent report from the Corporation for Enterprise Development and the Institute for Policy Studies.

Wingfield, Adia Harvey, “About Those 79 Cents,” The Atlantic, Oct. 17, 2016, http://tinyurl.com/j9l352w. The popular statistic that women earn about 79 cents for every man’s dollar fails to take into account the wider disparities for women of color, a sociology professor argues.

Organizations

AFL-CIO
815 16th St., N.W., Washington, DC 20006
202-637-5000
www.aflcio.org
Umbrella federation for 56 U.S. unions that monitors corporate governance.

Brookings Institution
1775 Massachusetts Ave., N.W., Washington, DC 20036
202-797-6000
www.brookings.edu
Think tank that analyzes and researches public policy issues, including those related to the economy and wages.

Cato Institute
1000 Massachusetts Ave., N.W., Washington, DC 20001
202-842-0200
www.cato.org
Libertarian think tank that runs HumanProgress.org, an organization that measures changes in the U.S. standard of living.

Congressional Budget Office
Ford House Office Building, Fourth Floor, Second and D streets, S.W., Washington, DC 20515
202-226-2602
www.cbo.gov/topics/income-distribution
The federal agency that regularly analyzes the distribution of household income before and after government transfers and federal taxes.

Economic Policy Institute
1333 H St., N.W., Suite 300, East Tower, Washington, DC 20005
202-775-8810
www.epi.org
Liberal think tank that researches wages and incomes.

The Heritage Foundation
214 Massachusetts Ave., N.E., Washington, DC 20002
202-546-4400
www.heritage.org
Conservative think tank that studies policy on a variety of economic issues.

Institute for Compensation Studies
Cornell University, ILR School, 216 Ives Hall, Ithaca, NY 14853
607-255-2222
www.ilr.cornell.edu/institute-for-compensation-studies/
Research center at Cornell University that studies wages and other rewards.

U.S. Bureau of Labor Statistics
Postal Square Building, 2 Massachusetts Ave., N.E., Washington, DC 20212
202-691-5200
www.bls.gov
Collects and tabulates wage data including the Employment Cost Index, which is a principal economic indicator for the U.S.

U.S. Census Bureau
4600 Silver Hill Road, Suitland, MD 20746
301-763-4636
www.census.gov/programs-surveys/cps.html
The Census Bureau’s Current Population Survey is a key source of information on U.S. incomes.

DOI: 10.1177/237455680222.n1