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Where Have America's Wages Gone?

Things won't start looking up for most Americans until most Americans send a clear message to their leaders: It's no longer acceptable to favor the few at the expense of the many.
 
 
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A new briefing paper from the Economic Policy Institute provides an overview of the income stagnation currently plaguing the vast majority of Americans. " A Decade of Flat Wages," by Lawrence Mishel and Heidi Shierholz, offers valuable background on one of the under-reported stories of our time: the slow disappearance of the middle class and the loss of social mobility.

The critical question is  why? Why has the economy failed so many people, and what can be done about it?

Stuck in the Middle

The authors state the problem clearly and concisely: "The wage and benefit growth of the vast majority ... has stagnated, as the fruits of overall growth have accrued disproportionately to the richest households."

As Mishel and Shierholz note, "The wage-setting mechanism has been broken for a generation but has particularly faltered in the last 10 years ..." Corporate profits have reached historic levels and the top one percent of earners have captured virtually all income growth.

We don't have a problem of inadequate wealth. The problem is inadequate wealth distribution. For 99 percent of Americans, wage growth has lagged significantly behind increases in productivity. As the authors note, this is true "regardless of occupation, gender, race/ethnicity, or education level." Since the Great Recession productivity has grown by 7.7 percent, while wages have actually fallen for the bottom 70 percent of earners.

What's more, as Mishel and Shierholz observe, "This lost decade for wages comes on the heels of decades of inadequate wage growth." Between 2001 and 2012 productivity grew by 22.2 percent, while wages grew only 0.8 percent. This was "the norm in white-collar, blue-collar, and service jobs, with little variation among occupational categories."

These figures challenge the traditional assumption that increased productivity helps everyone. They suggest that something has fundamentally changed, that the wealthiest among us are winning more of our nation's riches than ever before.

The Roots of Crisis

A companion report from EPI,  The State of Working America, 12th Edition, identifies some of the causes: Growing inequality. Policy inaction which eroded the value of the minimum wage. The weakening of employees' rights. Tax policy. Wall Street deregulation.

Other factors are left unmentioned, including problems in corporate governance and the distorting effect of changing executive compensation on corporate management practices.

This wage crisis is threatening to destroy the middle class. It endangers the long-successful economic model which used a thriving middle class to purchase goods and services that ensured continued growth.

Now the middle class is withering away. The model of prosperity it supported is being replaced by an increasingly financialized economy. If current trends continue, more than half of all corporate profits will soon be captured by banks and other financial institutions -- from the movement and manipulation of money, rather than from goods and services.

Meanwhile, wages will continue to stagnate and those parts of the economy which depend on middle-class consumers will fall behind.

Architects of Stagnation

How did we find ourselves in this position? Who let this happen?

Mishel and Shierholz praise President Obama's new theme of economic growth from "the middle out," while gently chastising him for neglecting to address the wage problem. But it's likely to take more than gentle chastisement to turn the Democratic leadership around. Too often, Republicans who stigmatize government have been aided by "centrist"Democrats in the Clinton/Obama mold who embrace their "small government is better" rhetoric.

The word "centrist" is placed in quotation marks because polls show that their economic views are to the right of the American mainstream. On issues such as corporate taxation, Social Security benefits, and free trade, they stand to the right of most Americans -- and sometimes to the right of most registered Republicans.