Perhaps the most important economic trend of the past fifty years is also one of the least discussed. Wages are falling. In the 1950s and 1960s, wages grew as the economy grew. But in the early 1970s, wages for the majority of the population became uncoupled from economic growth.
First, for those unfamiliar, a quick explanation of the difference between mean and median wages. Mean wages are determined by adding everyone’s wages and dividing by the number of people. But one Bill Gates can have a big influence on mean wages. If you want to know how the ‘average’ worker is doing you probably don’t want to look at the mean, since that’s heavily influenced by both very high earners and very low earners. Instead, the median is the person who would be in the middle if we lined everyone up according to their wages. Fifty percent make more than her, fifty percent make less. This is closer to what most of us have in mind when we talk about the average worker.
I took a quick look at median weekly earnings for men and women going back to 1979. While median wages overall are basically unchanged, breaking down the data by gender shows that earnings of the median male have actually decreased substantially. By “real” earnings I simply mean that the numbers have been adjusted to account for inflation.
The data only gets more disturbing when we start to break it down in more detail. The most in-depth analysis comes from a Brookings Institution report, “Trends: Reduced Earnings for Men in America.” To start with, they have clear picture of trends over the past 60 years. As you can see, until the early 70s, both mean and median earnings were growing. In the 70s, both shrank as oil crises hit and the economy struggled. But in the 1980s mean wages started to increase again while the median continued to fall.
In other words, wages for the top of the income distribution kept growing, while the bottom 50 percent had wages cut. The picture gets even more disturbing when we break it down by education level and work status. In the most frightening table of numbers I have ever seen, Greenstone and Looney break down the change in male earnings in the forty years from 1969 to 2009. Note that if you’re a male with a high school education, and you work full-time, you can expect to earn 26 percent less than you would have in 1969. Of course, that’s assuming that you’re able to get a job. Given the increases in part-time work and unemployment men with high school educations actually earn 47% less than they did in 69. Did you catch that? For men, the return to graduating high school and entering the labor force has been cut in half over the past forty years. And we wonder why we have problems with poverty?
Perhaps you think a college degree is the answer? Well, if you’re able to get a job, your wages will have stagnated instead of declined (a -2 percent change). But once we add in the pesky increase in part-time work and unemployment, male college graduates – at the median – actually earn 12 percent less than they did forty years ago.
For those of you who prefer charts to numbers, Dylan Matthews has saved me some time and produced one showing wage decline by education level:
Two weeks ago, I wrote about how wealth has plummeted for the poor and middle-class. With these kinds of changes in income, is it any wonder that net wealth is decreasing for the bottom half of the U.S.? Taken together, the wealth and income numbers show us that we have a broken economy. The economy no longer works for the average worker. Happy Labor Day!