Wage stagnation isn’t due to a compositional shift

From the mid-1940s through the mid-1970s, inflation-adjusted wages for Americans in the middle and below rose in sync with the economy. Since then, the median wage has barely budged. Steve Landsburg suggests that worry about this is misplaced, because what looks like wage stagnation actually is an artifact of a compositional shift in our labor force: “There’s been a great influx of lower income groups — women and nonwhites — into the workforce. This creates the illusion that nobody’s progressing when in fact everybody’s progressing.”

It’s true that employment of women and nonwhites has increased relative to that of white males. But that didn’t begin in the late 1970s. It’s been going on for a long time. Here is the trend in the white male share of total employment since the early 1950s:

A compositional shift in employment isn’t what distinguishes the era of wage stagnation from the earlier period of rising wages.

8 thoughts on “Wage stagnation isn’t due to a compositional shift

  1. Lane,

    Aren’t the statistics of wage stagnation problematic because they use different price indexes? The median compensation is calculated using the CPI, but real productivity is calculated using output deflator. Martin Feldstein and Ed Lazaer argue that if you use total compensation and the same index, preferably the PPI, wages track productivity since 1980. I posted the two links at the bottom if you’re interested.

    P.S. Great blog!

    http://macromarketmusings.blogspot.com/2008/04/more-real-wages-and-productivity.html

  2. I don’t see how this invalidates the idea that the perception of wage stagnation is due to compositional shifts. What it does show is something weaker: it shows that compositional shifts can’t entirely account for the slowing in aggregate wage growth. The story your data implies is that pre-1970 there was both wage growth and compositional shifting and the wage growth was so fast it overwhelmed the effect of the compositional shift. Since 1970 we have still had both wage growth and compositional shifting, but now the slower wage growth is masked by the compositional shift. But it’s still there, it’s still real. It’s slower than the pre-1970 growth but it’s not accurately described as stagnation.

  3. I think most people agree the slowdown in wage growth is mostly due to a slowdown in growth in education (with computers and globalization playing supporting roles). Landsburg probably wouldn’t disagree that wage growth is slowing down or that a productivity slowdown is the main cause. I think he’s just tired of hearing about how wages aren’t growing when they are.

  4. What is the average inflation-adjusted wage for a non-skilled or semi-skilled wage earner today versus the last 5 decades. Is it higher or lower? It doesn’t look any better because a smaller % of those workers are white males. Talk about dissimulation.

  5. Wage stagnation is due to increased labor market competition. The mix of who is among that composition just tells us who is exposed to the greater competition.

    At the end of WWII the US enjoyed a unique, and unsustainable eonomic position in the world. We had a fuly mobilized economy at a time when the rest of the world was damaged and in need of rebuilding. Our factories and economy became the cornerstone of recovery from the war. Because of this our workers could be paid much higher real wages than before the war.

    As the rest of the world recovered, our advantage faded, and our wages were increasingly in competition with workers in other countries. This effect was accelerated after the communist countries joined into the world labor pool.

    We are facing an inescapable tide that lifts the fortunes of the truly poor in the world, while holding down the wealth of the unskilled laborer in the US. On average, the world’s workers are much better off today, but the American worker is losing some ground.

  6. CJ, I agree. Another factor in both wage stagnation and rising inequality is the entry of women into the workforce. With the decline in manufacturing, physical strength became less important, allowing women to compete and putting pressure on wages for lower skilled men. At the higher end of the income spectrum, you have the phenomenon of ‘associative marriage’ and its impact on household (if not individual) inequality. While clearly positive for society as a whole and for women, less skilled men were affected negatively. Not all new competition was external.

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