In the United States, wages for people in middle-paying jobs and below have been flat for more than three decades. This has gone on for so long now that we should see it as the new normal, rather than a temporary aberration. There are a host of causes: intense product market competition (whether global or domestic), shareholders obsessed with short-term profits, mechanization, the shift from manufacturing to services, firms’ ability to offshore, “pay for performance,” immigration, stagnant educational attainment, weak unions, and a flat minimum wage.
I suspect (here, here) that some of the left’s chief strategies for solving this problem — reviving manufacturing, strengthening unions, and full employment — aren’t likely to be achievable. Indeed, I don’t see any reason for optimism about wage growth for the lower half going forward. I therefore think it’s worth exploring alternative ways to ensure that household incomes and living standards can keep pace with economic growth.
Jared Bernstein has some characteristically thoughtful comments. His main point is that we shouldn’t give up on rising wages. He thinks in particular that there’s a reasonable chance we can get the labor market tight enough to push wages up, as happened in the late 1990s. He and I agree that much hinges on the Fed’s approach. Here’s Jared:
The monetary authorities will pursue full employment but the question is how will they define it? If they set it too high (i.e., if they assume a NAIRU that’s too high), we’ll fail to create the wage pressure Lane cites above. But remember, the Federal Reserve is not a “structural trend” like the shifting of manufacturing output from advanced to emergent economies. They are a policy making body and are not immutable nor impervious to change. For Keynes’ sake, it was Greenspan of all people who presided over—in fact, accommodated—the full employment period of the latter 1990s. And post-crash, Bernanke and Yellen have been, in word and deed, acting quite differently than Lane’s post-crash supposition above. So Lane might be right but I wouldn’t make that assumption and progressives should fight back hard on this one.
I agree we should try to get the Fed to take more seriously its full employment mandate. That would be an enormously beneficial policy shift. But it’s a difficult battle, even if Janet Yellen becomes the next Fed chair. And what the Fed has done in this crisis isn’t necessarily a signal of what it will do if and when the economy gets close to full employment. There, I think our best guide is the past. The late 1990s, when Greenspan chose to keep interest rates low despite an unemployment rate that reached below 4%, was very much the exception rather than the rule.
Let me put in this way: Given that we’ve had a labor market tight enough to push wages up in only a few of the past 30-plus years, is it wise to see this as a likely solution to wage stagnation?
Ultimately, though, I think any disagreement between Jared and me here is one of emphasis. Jared wants us to keep seeking ways to get wages rising again. I do too, but I’d like to see more exploration of non-wage paths to rising incomes and living standards.
Lane, does not the statement “wages for people in middle-paying jobs and below have been flat for more than three decades” depend upon which consumer price index is used?
over 30 years, the mismeasure of better product quality and new goods introduces major biases, longer life expectancy is another major issue.
A BBC television documentary placed two parents and four children in their home with only the amenities available in each of the 1970s, 1980s and 1990s. The programme follows the middle class family’s adaption and reaction to being thrown back to a more technologically sparse period and how their pastimes and attitudes change in response to landing in the early 1970s and coming up-to-date.
The programmes revealed the huge transformation that technological change has wrought on family life. The children have to cope when they swap Facebook for black-and-white telly and vinyl records.
Goodbye to their three games consoles, three DVD players, five mobile phones, six televisions and seven computers, not to mention their dishwasher, two washing machines and tumble dryer.
Filming occurred over the winter of 2009, which was particularly cold and snowy for England, a fact which figured into the story. the family had to endure a lack of central heating for the 70s episode.
The characterization of wages at the middle and below as flat since the 1970s is using the CPI-U-RS (http://stateofworkingamerica.org/chart/swa-wages-table-4-4-hourly-wages-workers/).
Household incomes in the lower half have grown, but slowly and mainly due to adding a second earner (https://lanekenworthy.net/2012/03/11/is-decoupling-real/).
Living standards are harder to measure, but I’d characterize them too as having increased more slowly than they should have given the growth of the economy (http://www.u.arizona.edu/~lkenwor/soc150c2-sharedprosperity2.pdf).
A late reply…
You seem to be missing a very important point here: who has the political power to push for higher wages?
Because as the story with bankers and pharma it is pretty clear that the distribution of income in the US is primarily determined by politics.
The politics in the USA and in the UK and other first world countries are that most VOTERS WANT LOWER WAGES, and have been voting for lower wages for decades. Even more so campaign donors.
It is easy to see why: usually voters, and even more so donors, are in the top half of the income and wealth distribution, they think that they have safe jobs with very much a guaranteed income, and they own assets on which they want to make endless tax free capital gains.
Also most voters and donors are older and the majority of them are asset owning women, who are well known to be swing voters.
What this majority of voters and donors want is lower wages for everybody else, because they think that they have got theirs, and everybody else’s wages are costs to them, and reduce the chances for capital gains.
They also want low welfare spending for everybody else and high welfare spending for themselves, low taxes on themselves and high taxes on everybody else, and so on.
These are the voters and donors who have resoundingly re-elected and endorsed the congresspeople who voted for PATRIOT and TARP.
Their poitics is almost pure rentier politics. These voters want fascism-lite.
The results are that both the Republicans and the Democrats are trying very hard to pander to ehse voters and donors, especialy the older women who are swing voters and voting their wallets, and as Frum said:
«It’s fine to be unconcerned that the rich are getting richer, but blind to deny that middle-class wages have stagnated or worse over the past dozen years.
In the aftershock of 2008, large numbers of Americans feel exploited and abused.
Rather than workable solutions, my party is offering low taxes for the currently rich and high spending for the currently old, to be followed by who-knows-what and who-the-hell-cares.
This isn’t conservatism; it’s a going-out-of-business sale for the baby-boom generation.»
The argument to make to these voters is that it is in their own long term self interest to moderate their greed for rentier politics and let the yopung and working poor or relatively poorer have an increasing share of the pie, but instictively these voters think that being older and rentiers they don’t have a long term, and who cates what happens afterwards.
Seriously – voters in the year 2013-2014 want lower wages?
That belief might make sense if 50% of the voting population came from the top 20-25% of the income distribution – but that would only make sense if practically nobody in the bottom 1/3 to 1/2 of the distribution voted at all! While voting participation is definitely higher for the affluent than for the working poor, it’s not nearly extreme enough a disparity for the median voter to be more concerned about capital gains than about employment income.
The ‘bourgeois bias’ in our political establishment is likely explained almost entirely in terms of campaign finance, lobbying, political donors and the “PR-industrial complex.” If you look at public opinion polls, a vast majority of Americans (and narrow majority of Republicans!) favor a higher minimum wage:
However there is a clear right-wing bias in economic policymaking in the United States, mainly because of the tremendous influence of big-money donors that represent the interests of the “One Percent.” Time will tell how effective majoritarian populist pressure can be at overcoming this bias on key issues.