Outlook grim for middle-income workers, report says

September 10, 2012

Middle-income workers have endured a “lost decade” of stagnant wages and are teetering on the brink of another, the consequence of both the recent recession and a long series of policy choices that have eroded their leverage in the job market, according to a report.

In its 12th edition of the “State of Working America,” the Economic Policy Institute, a liberal research organization, points out that inflation-adjusted pay has slipped for most workers — including college graduates — over the past decade.

With the nation’s unemployment rate at 8.1 percent and projected to remain unusually high for several years, there will be little pressure for employers to increase pay for many workers, the report added.

Even as the middle class has had to make do with less pay, wages for the nation’s top income earners have increased significantly. That trend abated briefly in the late 1990s, but otherwise has been a feature of the economy since the late 1970s, the report said.

Inflation-adjusted incomes for households in the top 1 percent have more than tripled since 1979, compared with an increase of 40.6 percent for those in the middle of the wage distribution, the report said.

Although workers have been subject to dwindling wage increases over the past three decades, they are more productive than ever, adding to the gap between worker output and wages that has been widening since the mid-1970s.

Many economists call the divergence the inevitable cost of technological advances that have made the workforce more efficient and put a premium on innovation, problem solving and technological savvy, while making many categories of employment less lucrative.

They also blame an increasingly global labor market for putting American workers in competition with workers who are paid less in developing nations.

But the report argues that a large part of the problem resides closer to home: A minimum wage that has not kept pace with inflation, a persistently slack labor market that has undermined worker leverage and the continued demise of unions. Between 1983 and 2011, the percentage of workers in unions has declined from 20.1 percent to 11.8 percent, according to the Bureau of Labor Statistics.

Institute economists also point to waves of deregulation that have allowed the financial services industry, where top executives often are rewarded with lavish compensation packages, to become a larger slice of the overall economy.

“These are the predictable consequences of policy decisions made over the years,” said Heidi Shierholz, one of the institute economists who contributed to the report.

The growing wage inequality has been accompanied by widening wealth disparity. The report says that Americans in the bottom 60 percent of wealth holders saw their net worth decline between 1983 and 2010, while 75 percent of the wealth increases went to the richest 5 percent.

Amid all of that, the report said that many Americans appear unprepared to meet their growing responsibility for planning and funding their retirements by managing 401(k)s and other assets.

In 2010, less than half of all households owned stock, and less than one-third of households owned more than $10,000 in stocks, including those held in retirement plans. The median black and Hispanic households owned no stocks, the report said.

Josh Bivens, an institute economist who also contributed to the report, said that the most feasible plan now is to protect programs such as Social Security and Medicare that are pillars of economic security for Americans.

He said reversing the trends pushing against middle-income workers would require policy options that most Republicans view as undesirable and many Democrats see as unattainable.

The options include a financial stimulus to stoke job creation, more restrictive trade deals, policy to make it easier to organize labor unions, a higher minimum wage and more aggressive Federal Reserve policy aimed at pushing down interest rates and lowering unemployment.

“There are no silver bullets, just silver buckshot,” Bivens said, adding: “The politics are such that it is not going to happen.”

Michael A. Fletcher is a national economics correspondent, writing about unemployment, state and municipal debt, the evolving job market and the auto industry.
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