After Six Years of Growth, Wages Are Still Stagnant
July 24, 2007
The Right Wing Noise Machine econ division has continued to tell us that this is the greatest expansion since sliced bread. However, the underlying statistics indicate otherwise. Job growth is still the weakest of the last 60 years. And most importantly, wage growth is still lagging. This is the central reason why the economy continues to poll poorly. How would you feel if you hadn't had a raise in 7 years?
Let's start with information from the Federal Reserve. Their latest report on consumer finances was published in 2005, titled the Survey of Consumer finances. It stated:
The survey shows that, over the 2001-04 period, the median value of real (inflation-adjusted) family income before taxes continued to trend up, rising 1.6%, whereas the mean value fell 2.3 percentâ€¦.These results stand in contract ot the strong and broad gains seen for the period 1998 and 2001 surveys and to the smaller but similarly broad gains between the 1995 and 1998 surveys.
The Federal Reserve is not the only source that indicates wages have been stagnant. The Census Bureau keeps track of median and mean incomes. The last year they have computations for is 2005. Median income in 2005 dollars was $46,569 in 2001 and $46,326 in 2006. Mean income in 2005 dollars was $64,191 in 2001 and $63,344 in 2005. Notice that after adjusting for inflation, mean and median income statistics are lower in 2005 than in 2001. These are not healthy developments.
The Bureau of Labor Statistics also keeps track of wages in the form of average hourly earnings of production workers. These figures have to be adjusted for inflation. According to the National Bureau of Economic Research this expansion started in November 2001 when the wages was $14.72. This figure was $17.38 in June of 2007 for an increase of 18.07%. Over the same period the inflation level increased from 177.4 to 208.352 for an increase of 17.44%. That means that since this expansion began, wages have increase .63%. From a practical perspective, this means wages have basically stood still.
The Bureau of Economic Analysis issues the personal income figures every month. The problem with this statistic is it is a macro-level statistic. This means it includes the top 10%, which has disproportionately gained income during this expansion:
This same observation was made in the latest Foreign Affairs article titled A New Deal For Globalization:
Those earlier barons disappeared by the 1920s and, constrained by the Depression and by the greater government oversight and high income tax rates that followed, no one really took their place. Then, starting in the late 1970s, as the constraints receded, new tycoons gradually emerged, and now their concentrated wealth has made the early years of the 21st century truly another Gilded Age.
Only twice before over the last century has 5 percent of the national income gone to families in the upper one-one-hundredth of a percent of the income distribution — currently, the almost 15,000 families with incomes of $9.5 million or more a year, according to an analysis of tax returns by the economists Emmanuel Saez at the University of California, Berkeley and Thomas Piketty at the Paris School of Economics.
Such concentration at the very top occurred in 1915 and 1916, as the Gilded Age was ending, and again briefly in the late 1920s, before the stock market crash. Now it is back, and Mr. Weill is prominent among the new titans. His net worth exceeds $1 billion, not counting the $500 million he says he has already given away, in the open-handed style of Andrew Carnegie and the other great philanthropists of the earlier age.
If Bill Gates enters a room with 100 people who all make minimum wage, then the average and median income of the room is still impressive.
The astonishing skewness of U.S. income growth is evident in the analysis of other measures as well. The growth in total income reported on tax returns has been extremely concentrated in recent years: the share of national income accounted for by the top one percent of income earners reached 21.8% in 2005 -- a level not seen since 1928. In addition to high labor earnings, income growth is driven by corporate profits, which are at a nearly 50-year highs as a share of national income and which accrue mainly to those with high labor earnings.
The short version is simple. Wages aren't increasing. That explains why 6 in 10 people think the country is on the wrong track. How would you feel if you hadn't had an increase in your salary in the last 7 years?