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The Great Wage Slowdown of the 21st Century Ohttp://www.nytimes.com/2014/10/07/upshot/the-great-wage-slowdown-of-the-21stcentury.html?abt=0002&abg=1CT 7, 2014 David Leonhardt     American workers have been receiving meager pay increases for so long now that it’s reasonable to talk in sweeping terms about the trend It is the great wage slowdown of the 21st century The typical American family makes less than the typical family did 15 years ago, a statement that hadn’t previously been true since the Great Depression Even as the unemployment rate has fallen in the last few years, wage growth has remained mediocre Last week’s jobs report offered the latest evidence: The jobless rate fell below percent, yet hourly pay has risen just percent over the last year, not much faster than inflation The combination has puzzled economists and frustrated workers Of course, there is a long history of pessimistic predictions about dark new economic eras, and those predictions are generally wrong But things have been disappointing for long enough now that we should take the pessimistic case seriously In some fundamental way, the economy seems broken I probably don’t need to persuade most readers of this view, so the better way to think about the issue may be to consider the optimistic case And last week, in his most substantive speech on domestic policy in months, President Obama laid out that case It included the usual set of glass-half-full statistics and wishful-thinking proposals that officeholders talk about during political campaigns More notable, though, was that Mr Obama – speaking at Northwestern University – explained why he thought wage growth was likely to pick up “If we take the necessary steps to build on the foundation,” he said, after a litany of the good news, “I promise you, over the next 10 years we’ll build an economy where wage growth is stronger than it was in the past three decades.” He may or may not be right about that But the speech laid out the issues in unusually clear terms And by any definition, the great wage slowdown – or its end – is one of the most important subjects in the country today You can think of Mr Obama’s argument as falling into two categories (even if he didn’t say so): the reasons that overall economic growth may     accelerate, and the reasons that middle- and low-income workers may benefit more from that growth than they have lately Both factors have contributed to the wage slowdown The size of the pie hasn’t been growing very fast, and most of the increases have gone to a small share of already well-fed families Since 2000, weekly earnings for low- and middle-income workers are nearly unchanged, after adjusting for inflation Earnings for workers at the 90th percentile have risen On the growth side of the ledger, both energy and education have been problems The cost of energy, after temporarily falling in the 1990s, returned to its post-1970s norm in recent years and acted like a tax on the rest of the economy Education, meanwhile, is the lifeblood of economic growth, allowing people to entirely new tasks (cure a disease, invent the Internet) or to old ones with less time and expense Yet educational attainment has slowed so much that the United States has lost its once-enormous global lead On both fronts, the country has been making progress, Mr Obama rightly noted The fracking boom and a more modest clean-energy boom have increased this country’s share of energy production and held down costs worldwide The price of oil has been mostly flat for three years And the number of high-school and college graduates is rising The financial crisis deserves some perverse credit, because it sent people fleeing back to school, much as the Great Depression did But some of the efforts to improve school performance – by raising standards and accountability – are also playing a role Last year, 33.6 percent of 25- to 29-year-olds had a four-year college degree, up from 30.8 percent in 2008, according to the National Center for Education Statistics That leaves a lot of room for further improvement, but it’s more progress than in prior years In 2000, the share was 29.1 percent Mr Obama didn’t mention her in the speech, but another reason for optimism at the White House is Janet Yellen, who took over the Federal Reserve this year Under Ben Bernanke, her predecessor, the Fed was heroically creative in fighting the financial crisis After the crisis, though, Fed officials made the same mistake repeatedly: overestimating the health of     the economy Ms Yellen has suggested that she’s learned that lesson and will be even more aggressive about trying to lift growth with low interest rates As for the other entry in the ledger, the biggest reason to think economic growth may translate more directly into wage gains is the turnabout in health costs After years of rapid increases, they have slowed sharply in the last three years Mr Obama likes to give more credit to the 2010 health care law than most observers do, but he’s not wrong about the trend’s significance Health costs take a direct bite out of paychecks Employers don’t have some secret stash of money to pay for health insurance; when it becomes more expensive, there is less money left for salaries It’s no accident that the best period of wage growth in the last 40 years – the late 1990s – was also a period of quiescent health inflation If you’re skeptical that these trends are actually encouraging, take a minute to play an alternate-history game Imagine someone had come to you a few years ago and predicted that health inflation would slow sharply, that the cost of oil would be flat, that the United States would soon produce more oil than it imports and that both the high-school and college graduation rates would rise Most of us would not have replied: Yeah, that all sounds right 399 COMMENTS But here’s where I become less optimistic than the president Imagine that same prognosticator had added one more bit of clairvoyance: Despite all those positive trends, the real median weekly pay of full-time workers in mid-2014 would be slightly lower than it was in mid-2011 Or than it was in mid-2008, the year before Mr Obama took office Or in mid-2000 It’s certainly possible that we’re on the verge of a pay surge, much as we were in the mid-1990s, when the situation also seemed bleak It’s also possible that the forces behind the great wage slowdown – from globalization to our often-sclerotic government to (at least for many workers) technological change – are still more powerful than the positive forces In that case, the wage slowdown won’t end until the country makes much more progress in improving education, cutting medical waste and energy costs and creating a more responsive, nimble government     Either way, the great wage slowdown, or the end of it, will help set the tone for American life in the coming decade It has already done so in the century’s first 15 years, causing widespread unhappiness with the country’s direction and leading voters to shift partisan directions multiple times The political turmoil isn’t likely to end until the economic reality changes JAMES MATKIN QC VANCOUVER BC 17 hours ago The key dynamic driving this THE GREAT WAGE SLOWDOWN according to economic research has been the divergence between the growth of productivity— the improvement in the output of goods and services produced per hour worked— and the growth of wages and benefits (compensation) for the typical worker "It has been amply documented that productivity and hourly compensation grew in tandem between the late 1940s and the late 1970s, but split apart radically after 1979 Nationwide, productivity grew by 69.1 percent between 1979 and 2011, but the hourly compensation of the median worker (who makes more than half the workforce but less than the other half) grew by just 9.6 percent (Mishel and Gee 2012; Mishel et al 2012).1 In other words, since 1979 the typical worker has hardly benefited from improvements in the economy’s ability to raise living standards and, consequently, middle-class families’ living standards have barely budged since then This phenomenon has occurred across the nation, including in Michigan."This divergence between pay and productivity is strongly related to the erosion of collective bargaining And collective bargaining has eroded more in Michigan than in the rest of the nation, helping to explain Michigan’s more disappointing outcomes." Lawrence Mishel 2012.In a landmark case the Supreme Court of Canada this month decided that full collective bargaining is a protected value under the Charter of Rights a possible reverse to flagging success union bargaining Trends in Income Inequality and its Impact on Economic Growth Hide / Show Abstract In most OECD countries, the gap between rich and poor is at its highest level since 30 years Today, the richest 10 per cent of the population in the OECD area earn 9.5 times the income of the poorest 10 per cent; in the 1980s this ratio stood at 7:1 and has been rising continuously ever since However, the rise in overall income inequality is not (only) about surging top income shares: often, incomes at the bottom grew much slower during the prosperous years and fell during downturns, putting relative (and in some countries, absolute) income poverty on the radar of policy concerns This paper explores whether such developments may have an impact on economic performance     Drawing on harmonised data covering the OECD countries over the past 30 years, the econometric analysis suggests that income inequality has a negative and statistically significant impact on subsequent growth In particular, what matters most is the gap between low income households and the rest of the population In contrast, no evidence is found that those with high incomes pulling away from the rest of the population harms growth The paper also evaluates the "human capital accumulation theory" finding evidence for human capital as a channel through which inequality may affect growth Analysis based on micro data from the Adult Skills Survey (PIAAC) shows that increased income disparities depress skills development among individuals with poorer parental education background, both in terms of the quantity of education attained (e.g years of schooling), and in terms of its quality (i.e skill proficiency) Educational outcomes of individuals from richer backgrounds, however, are not affected by inequality It follows that policies to reduce income inequalities should not only be pursued to improve social outcomes but also to sustain long-term growth Redistribution policies via taxes and transfers are a key tool to ensure the benefits of growth are more broadly distributed and the results suggest they need not be expected to undermine growth But it is also important to promote equality of opportunity in access to and quality of education This implies a focus on families with children and youths – as this is when decisions about human capital accumulation are made promoting employment for disadvantaged groups through active labour market policies, childcare supports and in-work benefits Understanding the wedge between productivity and median compensation growth Posted April 26, 2012 at 12:31 pm by LAWRENCE MISHEL Lawrence Mishel Comments     One of the key dynamics of our economy for more than 30 years has been the divergence between productivity growth and compensation (or wage) increases for the typical worker This divergence between pay and productivity has been increasingly recognized as being at the heart of the growth of income inequality I am proud that Jared Bernstein (yo, Jared!) and I were the first ones to call attention to this, which we did in the introduction to The State of Working America 1994/1995, which was published on Labor Day in 1994 At that time, we were responding to the oft-repeated claim that wage stagnation experienced by most workers was caused by the post-1973 productivity slowdown Get productivity up and all would be OK, we were told Bob Rubin told us reducing the deficit would help accomplish that By plotting productivity and median wage growth together, we were able to demonstrate that even though productivity growth was indeed historically slow in the preceding two decades, the growth of the median wage had substantially lagged even this anemic productivity growth As it turns out, productivity growth accelerated in 1996 and has remained higher than in the 19731995 period since Interestingly, the gap between productivity and median hourly compensation growth has grown at its greatest rate over the 2000-11 period despite productivity growth that continued to outpace the 1973-95 rates Understanding the driving forces behind the productivity-median hourly compensation gap is the subject of a new paper, The wedges between productivity and median compensation growth, that previews a portion of the analysis in the forthcoming State of Working America This research reflects the results in a more technical paper, Why Aren’t Workers Benefiting from Labour Productivity Growth in the United States, that I co-authored with Kar-Fai Gee, an economist at the Canadian Centre for the Study of Living Standards (CSLS) The paper is in the spring 2012 issue of the International Productivity Monitor(edited by Andrew Sharpe and published by CSLS, on whose board I am proud to serve) During the 1973 to 2011 period, labor productivity rose 80.4 percent but real median hourly wage increased 4.0 percent, and the real median hourly compensation (including all wages and benefits) increased just 10.7 percent These trends are shown in the table below If the real median hourly compensation had grown at the same rate as labor productivity over the period, it would have been $32.61 in 2011 (2011 dollars), considerably more than the actual $20.01 (2011 dollars) Consequently, the conventional notion that increased productivity is the mechanism by which living standards increases are produced must be revised to this: Productivity growth establishes the potential for living standards improvements and economic policy must work to reconnect pay and productivity The objective of our new paper is to provide a comprehensive and consistent decomposition of the factors explaining the divergence between growth in real median compensation (note the paper focuses on median wages while I have     simplified the analysis here to focus on median compensation) and labor productivity since 1973 in the United States, with particular attention to the post2000 period In particular, the paper identifies the relative importance of three wedges driving the median compensation-productivity gap: 1) rising compensation inequality, 2) declining share of labor compensation in the economy (the shift from labor to capital income), and 3) divergence of consumer and output prices The following table is based on this paper and will be in the new edition of State of Working America that will be released on Labor Day This decomposition is of economy-wide productivity growth, real average hourly compensation growth of all workers (including the self-employed), and the median real hourly compensation of workers age 18-64 See the paper for technical details TABLE Panel A presents the basic trends in wages, compensation (median and average), and productivity, and reveals that the productivity-median compensation gap grew an average of 1.3 percent each year from 1973 to 2011 but grew the fastest since 2000 The most important factor in the 2000-11 era was the decline in labor’s share of income and the corresponding increase in capital’s income share In contrast, the period of sharply rising productivity and falling unemployment in the late 1990s saw a rise in labor’s share of income Growing inequality of compensation was very important throughout the 1979 to 2011 period Growing inequality of compensation and the erosion of labor’s income share are the key overall drivers of the wedge between productivity and median compensation, accounting for two-thirds of the wedge since 1973 and about 85 percent of the wedge since 2000 These factors, in turn, reflect the various ways that the typical worker has lost bargaining power in the economy over the last three decades: excessive unemployment, eroded labor market institutions such as the minimum wage and unions, globalization, deregulation of industries, privatization, and the rising power of finance The third factor, the fact that output prices (covering investment, exports, imports, government as well as consumption) grew more slowly than the prices of consumer purchases—sometimes labeled a deterioration in “labor’s terms of trade”—was evident throughout most of the last three decades and was most important in the 1970s and least important in the 2000s Maintaining rapid overall productivity growth—through innovation, restoring manufacturing, improved education and skills—is obviously an important policy goal But if we want to improve the living standards of the vast majority—and we definitely can so given the expected productivity growth—then we must also     place the challenge of reconnecting growth in overall productivity and median compensation at the center of economic policy UK Economy November 12, 2014 10:24 am Wage growth finally outstrips inflation Emily Cadman     ©Bloomberg Commuters cross London Bridge, near the UK capital's latest landmark, The Shard Wage growth, the long missing ingredient in the UK’s economic recovery, finally appears to be emerging http://www.ft.com/cms/s/0/f72be07c-6a4d-11e4-8fca00144feabdc0.html#ixzz49soi6AqE Wage growth, the long missing ingredient in the UK’s economic recovery, finally appears to be emerging For the first time since 2009, average earnings growth has outstripped inflation, raising hopes that the extended squeeze on living standards could be drawing to a close FirstFT is our new essential daily email briefing of the best stories from across the web Official figures from the Office for National Statistics released on Wednesday showed that, compared with the same period last year, average weekly pay excluding bonuses rose 1.3 per cent in the July to September period Overall consumer price inflation in September stood at 1.2 per cent The figures confirm the signals from a number of private sector surveys that salaries are starting to pick up, albeit at a gradual pace Matthew Whittaker, chief economist at think-tank the Resolution Foundation, said the data “hopefully marks the start of the long road back towards wage recovery” However, he cautioned that pay growth had only turned positive because inflation is substantially below target,   10   adding that given the depth of the six-year pay squeeze “we can’t expect average pay to return to its pre-crisis levels until the end of the decade” Overall, the economy added 112,000 jobs in the three months to September, meaning that the UK’s unemployment rate held steady at per cent, rather than falling as it has done all year But most economists overlooked the slight disappointment, focusing instead on positive signs within the detail of the report, such as the nugget that the number of job vacancies was almost back to the pre-recession peak, with the number of unemployed people per vacancy falling to 2.9 John Philpott, director of the Jobs Economist think-tank, said the data were the “most encouraging set of labour market figures for several months” He expected a return to “sustained if modest” real wage growth, but cautioned that the beneficiaries would be “skilled workers for whom demand is rising faster than supply rather than people in the lower half of the jobs league who will continue to feel the big squeeze”, Mr Philpott said   11   Michael Saunders, economist at Citi, highlighted the 2.3 per cent year-on-year rise in the number of full-time employees, compared with a 0.4 per cent rise in those working part-time as an important indicator that “job growth is increasingly oriented towards full-time employees” As much of the recent growth in employment has been in the low-pay sector or among younger workers, the change in the composition of the workforce is likely to have pulled down average pay levels A study from the Resolution Foundation last week found that average wages for workers who have stayed in their jobs had been growing faster than inflation The prospect of a boost in pay will be a boon for the government as it enters campaigning mode ahead of a general election, particularly as the opposition Labour party has focused on the cost of living and the squeeze on real wages Esther McVey, Conservative employment minister, said that it has been a “progressive recovery” in the labour market, pointing to gains in the number of full-time jobs, falling youth unemployment and rising levels of women in work “Bit by bit you can see the picture puzzle coming together,” she said     12       JamesMatkin Yes, rebalancing by the drop in inflation is little comfort for workers suffering decades of persistent stagnant wages in Europe and America Trump and Sanders in the US presidential elections blame adverse trade deals for the declining wage growth But wages failing to keep up with productivity gains from technology advances are the better explanation Also, the wage gap has exacerbated economic inequality - because shareholders (asset owners) mostly reap the rewards of productivity growth This distortion will not improve with more trade barriers, or tariffs to slow down globalization as proposed Somehow workers must share in the asset growth of their businesses I submit increasing employee ownership is the most promising way forward This shared ownership-avenue also makes for more engaged employees that are happier and more productive The situation is urgent and new government policies to facilitate greater worker ownership to redress the productivity imbalance are required http://www.ft.com/intl/cms/s/0/f72be07c-6a4d-11e4-8fca00144feabdc0.html#axzz49sep4ACs     13     14   ... heroically creative in fighting the financial crisis After the crisis, though, Fed officials made the same mistake repeatedly: overestimating the health of     the economy Ms Yellen has suggested... BC 17 hours ago The key dynamic driving this THE GREAT WAGE SLOWDOWN according to economic research has been the divergence between the growth of productivity— the improvement in the output of... reasonable to talk in sweeping terms about the trend It is the great wage slowdown of the 21st century The typical American family makes less than the typical family did 15 years ago, a statement