Between 2000 and 2012, American wages grew…not at all

August 21, 2013

You can always rely on the Economic Policy Institute for really depressing charts about just how far behind the U.S. middle class is falling, and the latest report from EPI President Lawrence Mishel and economist Heidi Shierholz is no exception. The paper — titled "A Decade of Flat Wages" — finds exactly that. Real hourly wages for people at the middle of the wage distribution were no higher in 2012 than in 2000. While the early 2000s saw some growth, it's all been wiped out since the recession hit, and hasn't rebounded at all.

Indeed, those with only a high school diploma have actually seen wages fall since 2000. College grads saw stagnant wages, while only those with advanced degrees actually made gains.

Here, you may object that the wage figures don't include other forms of compensation, like health and dental benefits or pension plans. That's very true, though it's easy to overstate the importance of that caveat. More spending on health care shows up as increased compensation but in many (if not most) cases it doesn't improve peoples' lives as much as just giving them that money would. Indeed, it may not even improve their health more than just giving the money would. As Berkeley inequality expert Emmanuel Saez once put it, "the argument (of the right) has to be: cash market income of the bottom 99 percent of adults has stagnated but the bottom 99 percent get much more expensive private and government provided health care benefits, some more government transfers, and they have fewer kids. This does not seem like a great situation, especially from a conservative point of view."

In any case, growth in real compensation has been pretty anemic since 2000 too.

Get a load of that productivity line, and how much steeper it is than the compensation lines. That's not supposed to happen, and for many decades, it wasn't. In 1996, Paul Krugman observed that from 1977-1992, "the increases in productivity and compensation have been almost exactly equal. But then how could it be otherwise? Any difference in the rates of growth of productivity and compensation would necessarily show up as a fall in labor's share of national income -- and as everyone who is even slightly familiar with the numbers knows, the share of compensation in U.S. national income has been quite stable in recent decades." That was true when Krugman wrote it. It's not true anymore. Labor's share of national income is experiencing a serious fall. The benefits of productivity growth are going increasingly to owners of capital, not to labor.

How best to fix this is anyone's guess. Bruce Bartlett, for one, has suggested that this development means we should abandon economists' preference for not taxing capital income as much as labor income. Whether that'd work or have unintended negative consequences, we don't know for sure. But this is a really significant change the likes of which we haven't seen in modern memory.

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Ezra Klein | August 21, 2013