Empirical Trends in Wages and Compensation in the U.S.

The seemingly simple question of trends in earnings is, if not complex, then multifaceted. Are we talking about straight wages or all-in compensation? Medians or averages? Annual, weekly, or hourly earnings? The first concept—annual earnings—invokes questions of labor supply, as in weeks worked per year and hours worked per week. The second—weekly earnings—invokes variation in hours per week. The last concept—hourly earnings—one to which I pay considerable attention to in this section, is a fundamental building block of the living standards of working families.

I also look briefly at recent developments in labor's share of national income, as this key variable has been undergoing tectonic shifts that many economists view as relevant to the important question of growing inequality.

The key findings of this review of many of these trends are as follows:

• Real wages have both become much more dispersed over time, and, for certain groups, also undergone long periods of stagnation.

• Hourly wage trends have been less favorable for men than for women, though hourly pay has undergone long periods of stagnation for middleand low-wage women as well.

• Real wages across the wage scale received a clear lift during the high-pressure labor market of the full-employment latter 1990s.

• Wages by education reveal a clear and persistent gradient by attainment levels.

However, all attainment levels, with the exception of workers with advanced college degrees but including those with four-year degrees, experienced periods of stagnation in the past few decades, with the largest losses among those with the least education.

• Annual earnings by percentile show extreme dispersion at the very top of the pay scale and stagnation among the bottom 90 %.

• To the extent that the data permit it, adding employer-provided benefits to the analysis of compensation does not broadly change these findings.

• In recent years, labor's share of national income has significantly declined.

Hourly Wage Percentiles

As noted, the hourly wage is a fundamental building block of the living standards of working families. When real hourly wages are rising throughout the pay scale, families from all walks of life do not have to work more weeks or hours to get ahead and can thus balance family obligations with less stress. Unfortunately, hourly wage trends in recent decades have not been particularly favorable for most workers, and this in turn has required more family members to work more hours per week and weeks per year to raise family incomes. Mishel et al. (2012) find that 86 % of the increase in annual earnings for middle-income families between 1979 and 2007 was driven by more work, leaving only 14 % attributable to hourly wage growth.

Figure 6.1 shows real hourly wages at the 10th, median (50th), and 95th percentiles from 1979 to 2013, indexed to 100 in 1979 so as to be able to plot them together given their different scales (in 2013, the 10th percentile wage was about $8.40, the median about $16.70, and the 95th was about $52.80). ^[1]

This one simple figure captures many of the more important trends in real wages over the last 30-plus years. First, the pattern of wage inequality in the 1980s is evident as we see declining low wages, stagnant middle wages, and rising high wages. Next, the very important period of the latter 1990s, when full employment labor markets prevailed for a few years, is evident in the acceleration of all three series. Third, in a point that will become more important in a later section, while middle and low wages diverged in the 1980s, they have since generally converged. Finally, wage growth stagnated again for these lower two groups starting around 2000 and has yet to recover. In fact, real wages for lowand mid-wage workers were dealt another blow in the “Great Recession,” although some stabilization can be seen in the most recent data.

Let us pause here and note a truly remarkable development: With the exception of the tight labor markets of the latter 1990s, wage earners in the bottom half of the wage scale have seen little, if any, real hourly wage growth over the past three decades. Given that the workforce has grown older, more highly educated, and more

Fig. 6.1 Real hourly wage trends by decile, 1979–2013

Fig. 6.2 Real hourly wage trends: men

Fig. 6.3 Real hourly wage trends: women

productive over these years only increases the degree to which these trends are both unusual and problematic.

While there are, of course, many subgroups by which to break out wage trends, two of the most important are gender and education. Figures 6.2 and 6.3 are in the same format as Fig. 6.1 but are broken out for men and women. While the inequality pattern is notable in Figs. 6.2 and 6.3, salient differences exist. First, men in the bottom half of the wage scale did worse than women did. This difference is generally associated with the shift in labor demand from production worker jobs to service sector jobs—for example, from manufacturing to health care—a shift that has been particularly tough on non-college-educated men. ^[2]

However, low-wage workers experienced stagnant (in the case of women) or declining (in the case of men) real hourly wages since the late 1970s. These are trends that have been associated with demand shifts against “less skilled” workers (related to but broader than the industry shifts just noted), the decline in the real value of the minimum wage (a key determinant for women in the 1980s, for example), and slack labor markets. As I discuss in the policy section, that last factor is particularly critical for low-wage workers, as labor market slack hurts them the most and full employment helps the most.

• [1] These data were provided by the Economic Policy Institute and are featured in their State of Working America (I coauthored nine earlier editions of this compendium and thus helped to develop this wage series). The data are constructed from the Current Population Survey and are deflated using the CPI-RS. The sample includes 18to 64-year-olds.
• [2] For example, back in 1990, 16 % of employment was in manufacturing and 7 % in health care. In 2014, the respective shares were 9 % manufacturing and 11 % health care.