Economy

Higher Wages Are Spread Unequally Among US Workers: EPI

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In only 10 of the past 40 years have U.S. workers achieved positive wage growth. Half of those gains have come in the five-year period between 2014 and 2019 when the unemployment rate sank to half-century lows. At the end of last year, the median hourly wage reached $19.33 (about $40,000 annually).

The data is included in the latest study of U.S. wages from Elise Gould of the Economic Policy Institute (EPI). According to Gould, the top 5% of earners “continue to pull away from middle- and low-wage workers.”

Unsurprisingly, wage growth last year was strongest in states where the minimum wage was increased. Wage gaps persist (or are getting worse) for women and nonwhite workers. While wages are rising for most workers, wage growth “continues to be slower than would be expected in an economy with historically low unemployment.”

That slow and unequal growth in wages reflects policy decisions, Gould noted, that have “reduced the leverage of most workers to achieve faster wage growth.” The reasons often suggested for the slow growth are largely “uninformed myths.”

Slow wage growth is not due to lack of education, including benefits in total compensation, or changes to the way wages are adjusted to account for inflation. Potential wage growth “has been squandered on the very few at the top, leaving the vast majority of the U.S. workforce without economic power and the means to achieve a decent standard of living.”

The fastest wage growth over the past two years came in the top 5% of workers, where pay rose by 4.5% while median wages rose by just 1% and wages in the lowest 10% of US workers declined by 0.7%.

Between 1979 and 2018, U.S. productivity rose by more than 250% while hourly compensation rose by less than half that (116%). Where did that excess productivity go?

According to Gould, citing previous studies, a “significant portion went to corporate profits” boosting income for investors and business owners, but “much” of the productivity gain went into the incomes of the top 0.1% of the U.S. income distribution. Earnings for the top 0.1% of Americans have risen by 340% since 1979 and earnings for the top 1% have increased by 158%. The bottom 90% have seen an earnings gain of just 24%.

At the median, the gender wage gap between men and women narrowed. In 2019, a typical woman earned 85 cents for every dollar of a man’s earnings. Yet, Gould points out, the narrowing gender pay gap over the past 20 years was due in part to especially slow growth (0.2% annually) in men’s’ median earnings and the “tremendously fast” growth (0.7% annually) among women.

The gender wage gap is narrowest (men earn 9.2% more than women) in the lowest-paid 10% of the population and widest (29.2%) among the top 10% of earners. In a report last year on the impact of raising the federal minimum wage to $15 an hour, EPI calculated that the 58% of low-wage workers who are women would benefit from the higher minimum wage.

Over the same 20-year period, the overall black-white wage gap increased while the Hispanic-white gap narrowed slightly, according to Gould. At the median, blacks earned just over 79 cents for every dollar whites earned in 2000, but in 2019, blacks earned somewhat less than 76 cents for every dollar. Hispanics have closed the gap slightly, from about 70% of white wages in 2000 to almost 75% in 2019. Raising the minimum wage to $15 an hour would benefit 38% of all black workers and 33% of Hispanic workers, according to last year’s EPI report.

Gould concludes that the slow growth in wages over the past 40 years is a result of a number of policies “that have reduced the leverage of most workers to achieve faster wage growth.” She cites tolerating or encouraging high unemployment, failing to raise the minimum wage periodically, globalization agreements that allow employers to suppress wages, narrowing workers’ eligibility for overtime pay, steep tax cuts for businesses, deregulation and loose government oversight.

To level the playing field, Gould suggests adopting macroeconomic and labor policies that keep unemployment low, raise the minimum wage, expand eligibility for overtime pay, strengthen workers’ right to collective bargaining and addressing pay disparities based on gender, race or ethnicity.

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