economic policy institute - sad but true story of wages in america

8/6/2019 Economic Policy Institute - Sad but True Story of Wages in America

http://slidepdf.com/reader/full/economic-policy-institute-sad-but-true-story-of-wages-in-america 1/5

Economic Policy institutE • 1333 H strEEt, nW • suitE 300, East toWEr • WasHington, Dc 20005 • 202.775.8810 • WWW.EPi.org

i s s u E B r i E FE co no mi c P o li cy i ns ti tutE i s s u E Br i E F # 2 9 7 m ar c H 1 4 , 2 0 1 1

R ecent debates about whether public- or private-sector workers earn more have obscured a larger truth: all workers

have suered rom decades o stagnating wages despite large gains in productivity. Te current public discussion

illogically pits state and local government employees against private workers, when both groups have ailed to

suciently benet rom the economic ruits o their labors. Tis paper examines trends in the compensation o public (state

and local government) and private-sector employees relative to the growth o productivity over the past two decades.

Tis paper nds:

U.S. productivity grew by 62.5% rom 1989 to 2010, ar more than real hourly wages or both private-sector and•

state/local government workers, which grew 12% in the same period. Real hourly compensation grew a bit more

(20.5% or state/local workers and 17.9% or private-sector workers) but still lagged ar behind productivity growth.

Wage stagnation has hit high school–educated workers harder than college graduates, although both groups have•

suered—and a bit more so in the public sector. For example, rom 1989 to 2010, real wages or high school-educated

workers in the private sector grew by just 4.8%, compared with 2.6% in state government. During the same period,

real wages or college graduates in the private sector grew 19.4%, compared with 9.5% in state government.

Te typical worker has had stagnating wages or a long time, despite enjoying some wage growth during the•

economic recovery o the late 1990s. While productivity grew 80% between 1979 and 2009, the hourly wage o the

median worker grew by only 10.1%, with all o this wage growth occurring rom 1996 to 2002, refecting the strong

economic recovery o the late 1990s.

Te ading momentum o the 1990s recovery ailed to propel real wage gains or college graduates employed by •

private-sector rms or states rom 2002 to 2010, despite productivity growth o 20.2% over the same period.

Tese data underscore that there is a bigger story than public versus private compensation and a more penetrating

set o questions to ask than who has more than whom. Te ability o the economy to produce more goods and services

has not translated into greater compensation or either group o workers. Why has pay ared so poorly overall? Why

did the richest 1% o Americans receive 56% o all the income growth between 1989 and 2007, beore the recession

began (compared with 16% going to the bottom 90% o households)? Why are corporate prots 22% above their

pre-recession level while total corporate sector employees’ compensation (refecting lower employment and meager pay

The Sad BuT True STory

of WageS in america

B y l a W r E n c E m i s H E l a n D H E i D i s H i E r H o l z



E P i i s s u E B r i E F # 2 9 7 marcH 14, 2011 PagE 2

increases) is 3% below pre-recession levels? Te answers lie in an economy that is designed to work or the well o

and not to produce good jobs and improved living standards.1

Essentially, economic policy has not supported good jobs over the last 30 years or so. Rather, the ocus has been on

policies that were thought to make consumers better o through lower prices: deregulation o industries, privatization

o public services, the weakening o labor standards including the minimum wage, erosion o the social saety net,

expanding globalization, and the move toward ewer and weaker unions. Tese policies have served to erode the bargainingpower o most workers, widen wage inequality, and deplete access to good jobs. In the last 10 years even workers with a

college degree have ailed to see any real wage growth.

Workers’ pay growth lagged productivity gainsFigure A tracks the ull, infation-adjusted compensation (including wages and benets) o private-sector and state/

local government employees since the rst quarter o 1989 (data back to the beginning o the 1980s business cycle are

unavailable). Over this period, the hourly compensation o private-sector workers grew by 17.9%, just slightly below the

20.5% growth in compensation o state/local public-sector workers. Te timing o the growth diered: Private-sector

compensation grew aster in the late 1990s, while state/local compensation grew aster in the early 2000s. Compensation

in both sectors has stagnated since mid-2008.

f i g u r e a

Growth in compensation o workers in private and state/local sector

compared with productivity, 1989Q1-2010Q3

I n d e x ( 1 9 8 9 Q 1 = 1 0 0 )

Source: EPI analysis of Bureau of Labor Statistics, Employment Cost Index data.

80

90

100

110

120

130

140

150

160

170

1 9 8 9 - i

1 9 8 9 - i i i

1 9 9 0 - i

1 9 9 0 - i i i

1 9 9 1 - i

1 9 9 1 - i i i

1 9 9 2 - i

1 9 9 2 - i i i

1 9 9 3 - i

1 9 9 3 - i i i

1 9 9 4 - i

1 9 9 4 - i i i

1 9 9 5 - i

1 9 9 5 - i i i

1 9 9 6 - i

1 9 9 6 - i i i

1 9 9 7 - i

1 9 9 7 - i i i

1 9 9 8 - i

1 9 9 8 - i i i

1 9 9 9 - i

1 9 9 9 - i i i

2 0 0 0 - i

2 0 0 0 - i i i

2 0 0 1 - i

2 0 0 1 - i i i

2 0 0 2 - i

2 0 0 2 - i i i

2 0 0 3 - i

2 0 0 3 - i i i

2 0 0 4 - i

2 0 0 4 - i i i

2 0 0 5 - i

2 0 0 5 - i i i

2 0 0 6 - i

2 0 0 6 - i i i

2 0 0 7 - i

2 0 0 7 - i i i

2 0 0 8 - i

2 0 0 8 - i i i

2 0 0 9 - i

2 0 0 9 - i i i

2 0 1 0 - i

2 0 1 0 - i i i

Productivity

Private sector

State and local government sector




Te parity in compensation growth in both sectors is surprising because the public sector includes a ar larger share o

college graduates (including those with advanced degrees), whose wages historically grew aster over the last ew decades

(at least until 2000 or so). Tus, the college graduate–intensive state/local public sector would be expected to experience

aster compensation growth than the less college graduate–intensive private sector. As we show below, this has not happened

because wages or college graduates in state and local government have grown only hal as much as in the private sector.

What really stands out in Figure A, however, is that productivity grew by 62.5% over this period, nearly three timesthe growth o hourly compensation. Te Bureau o Labor Statistics also has recently noted the ailure o compensation

to keep pace with productivity (they grew in tandem rom 1947-73).2 Tat productivity-pay gap is the bigger story here

than any public-private pay gap: Te ability o the economy to produce more goods and services has not translated into

greater compensation or workers.

College grads only somewhat bufered rom worst o lagging pay growthPay ailed to keep pace with productivity whether workers had a college degree or a high school degree, though those

with college degrees clearly ared better, at least until about a decade ago.

Figures B and C examine wage growth by education using tabulations o annual Current Population Survey Out-

going Rotation Group data rom 1989 to 2010. Wages (rather than compensation) o state government and private-sector

f i g u r e B

Real hourly wage growth or high school graduates working in private and

state/local sectors compared with productivity growth, 1989-2010

I n d e x ( 1 9 8 9 = 1 0 0 )

Source: EPI analysis of Current Population Survey, Outgoing Rotations Group.

80

90

100

110

120

130

140

150

160

170

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Productivity

Private-sector wages

State and local government wages




workers are the ocus because there are no data that directly measure employer-provided benets or workers by education

level3 and because policy and media attention has targeted state employee pay.

Figure B shows the growth o infation-adjusted hourly wages or high school–educated workers in state government

and in the private sector. High school–educated workers’ real wages grew by just 4.8% in the private sector, a bit higher

than the 2.6% growth in state government. In other words, wages were stagnant or 21 years, a trend that contrasts starkly

with the sharp 62.5% growth in productivity during the same period. Tese data conrm that—regardless o whetherthey worked in the private sector or worked or a state government—typical workers did not share in the growth o the

economy over the last two decades.

Tis two decades worth o low pay growth is part o an even longer trend o wage stagnation or the typical worker:

median hourly wages only grew 10.1% in real terms rom 1979 to 2009, even though productivity grew 80% in those

30 years. Since virtually all o this real wage growth occurred in the six years rom 1996 to 2002, refecting the wage

momentum o the strong economic recovery in the late-1990s, it is air to say that there has been no real wage growth

or the typical worker or most o the last 30 years. Analyses o total compensation that actor in the value o employee

benets yield the same result because nonwage benets as a share o total compensation also have ailed to grow since

1979, meaning benets did not grow aster than wages.4

Figure C presents a comparable analysis or college-educated workers (those with a bachelor’s degree but no urther

education). From 1989 to 2010, real wages o college graduates working in the private sector grew 19.4%, compared

f i g u r e c

Real hourly wage growth or college graduates working in private and

state/local sectors compared with productivity growth, 1989-2010

I n d e x ( 1 9 8 9 = 1 0 0 )

Source: EPI analysis of Current Population Survey, Outgoing Rotation Group.

80

90

100

110

120

130

140

150

160

170

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Productivity

Private-sector wages

State and local government wages




with hal that much in wage growth—9.5%—or college-educated state workers. Productivity grew 62.5% in this

period. It is important to note that neither state-employed nor private-sector college graduates experienced any real

wage gains rom 2002 (which marks the start o the expansion ollowing the recession o the early 2000s) to 2010—a

period in which productivity grew by 20.2%. In short, college graduates’ real wages were stagnant in recent years during

a time when productivity was growing rapidly.

Conclusion: Focus needs to shit toreconnecting worker pay growth to productivity growthTe rhetoric o some newly elected politicians has suggested that state and local public employees in the United States

are some sort o privileged class, earning high wages and benets at the expense o the taxpayers. In act, state and local

government employees are not a privileged class.5 Rather, they are part o the same class as the taxpayers to whom they

provide services, and nd themselves in the same situation: Neither private-sector workers nor state and local government

employees have seen their pay rise much over the last two decades, and what meager pay growth they have experienced

has been ar outpaced by growth in productivity—the increased goods and services that they themselves have generated.

Te substantial growth in productivity, income, and wealth in the last ew decades could and should have generated

some pay growth or American workers. Reconnecting the growth o workers’ pay to the growth o productivity is themajor challenge policymakers should be addressing.

EndnotesSee Josh Bivens,1. Failure by Design: Te Story behind America’s Broken Economy , An Economic Policy Institute book. Ithaca, N.Y.:ILR Press, and imprint o Cornell University Press, 2011.

See “Te compensation-productivity gap,”2. Te Editor’s Desk , U.S. Bureau o Labor Statistics, Feb. 24, 2011; http://www.bls.gov/opub/ted/2011/ted_20110224.htm

For a standard approach or estimating benet levels by education, see Jerey H. Keee,3. Debunking the Myth of the Over-compensated Public Employee: Te Evidence , Economic Policy Institute, Brieng Paper, September 2010; http://www.epi.org/page/-/pd/bp276.pd.

See pages 129-130 o Lawrence Mishel, Jared Bernstein, and Heidi Shierholz,4. Te State of Working America 2008/2009. AnEconomic Policy Institute Book. Ithaca, N.Y.: ILR Press, and imprint o Cornell University Press, 2009.

Jerey H. Keee,5. Debunking the Myth of the Overcompensated Public Employee: Te Evidence.

economic policy institute - sad but true story of wages in america

Documents