September 15, 2006 Volume 107 Number 18

EPI Report: Workers' real wages have declined in five years

By DON McINTOSH, Associate Editor

America’s workers are losing ground to America’s elites, according to the State of Working America and several other recent reports.

Every other Labor Day, the Washington, D.C.-based Economic Policy Institute releases the State of Working America, a pulse-check chock-full of economic statistics on the well-being of American workers. EPI is an independent, nonpartisan research institute, but it’s not neutral. Its motto is “Research for Broadly Shared Prosperity,” and its mission is to use economic analysis to promote a prosperous, fair, and sustainable economy.

The conclusions of the 2006 State of Working America are nothing new for those who’ve been paying attention.

Adjusted for inflation, wages for workers have declined over the last five years — despite rapid growth in the productivity of the economy. Only the wealthiest are seeing their incomes rising faster than inflation. Starting wages for most jobs are lower. Wage growth over the course of an individual’s career is slower than it used to be. There’s less class mobility from generation to generation than there used to be. And American workers are falling behind their counterparts in Japan and Europe in basic quality of life standards.

“Today we’re seeing more and more Americans rowing harder and harder but not moving forward, while the big boats zoom farther ahead,” said EPI President Lawrence Mishel, who co-authored the report.

The EPI report, released over the Labor Day weekend, coincided with an Aug. 29 report from the U.S. Census Bureau, and an Aug. 31 report from the U.S. Department of Labor. The government reports contained related statistics, but more upbeat conclusions.

“It is a good time for American workers,” wrote U.S. Secretary of Labor Elaine Chao, in America’s Dynamic Workforce 2006. “Job opportunities are increasing, unemployment is low, and compensation is rising.”

[Chao, a Harvard MBA and former banker at Citibank, got a 1.9 percent raise to $183,000 last year as labor secretary, while her husband, Senate Republican Whip Mitch McConnell of Kentucky got a 1.9 percent raise to $165,000.]

The Labor Department reported 2 million new jobs created in 2005. Of course, there were also 2.7 million more people by year’s end. Fortunately, many of the new Americans are babies, and won’t need jobs for a couple decades. [U.S. population is estimated at 299.7 million; it’s expected to top 300 million by the end of the year.]

The unemployment rate is low, says the Labor Department — 4.7 percent in August, or 7 million Americans. But that figure is tricky — it’s based on a monthly survey that counts only those actively seeking work. Last year, many workers retired, and some stopped looking for work, and so the unemployment rate was said to drop, even though the employment rate dropped as well.

EPI says looking at the employment rate sheds some more light — in mid-2006 it was 1.6 percentage points below its 2000 peak, suggesting that up to 2.4 million more people were missing from the employment rolls.

Poverty Rate Stopped Rising Last Year

There were more people living in poverty, said the Census Bureau — 37 million people — but the poverty rate — 12.6 percent — had remained statistically unchanged from the previous year. That marked the end of four consecutive years of increases in the poverty rate.

Last year, the federal definition of poverty was $19,971 for a family of four; $15,577 for a family of three; $12,755 for two; and $9,973 for an individual. [In case you ever wondered: The federal government’s official definition of poverty was created by the Social Security Administration in 1964, based on a 1955 USDA survey of food consumption that found that families of three or more spent roughly one-third of their income on food. The SSA tripled the cost of the USDA’s “Economy Food Plan” to obtain an official poverty threshold, which since then has been modified annually based on the Consumer Price Index. The Consumer Price Index is the change over time in the prices paid by urban consumers for more than 200 categories of goods and services in eight major groups, including food, housing, clothing, transportation and health care.]

In effect, last year 37 million Americans were living on less than $5,000 to $10,000 per person. At the federal minimum wage of $5.15 an hour, a year-round full-time (40 hours a week) worker would earn $10,712 — enough to escape poverty only if he or she had no dependents.

Income Up, By Some Measures

The U.S. Census Bureau reported that inflation-adjusted median household income rose 1.1 percent between 2004 and 2005, reaching $46,326. It was the first year since 1999 in which real median household income showed an annual increase. [Median means midpoint, so half the households earned more, and half less.]

Oregon’s median was $43,262, while Washington’s was $49,262.

Black households had the lowest median income in 2005 ($30,858) among race groups. Asian households had the highest median income ($61,094). The median income for non-Hispanic white households was $50,784. Median income for Hispanic households was $35,967.

For those who believe in equal pay for equal work, the good news is women are getting equality in the workplace. The bad news is that it’s because men’s wages are falling faster than women’s, said the EPI. Real median earnings of males age 15 and older who worked full-time year-round declined 1.8 percent between 2004 and 2005, to $41,386. Women with similar work experience saw their earnings decline by 1.3 percent, to $31,858. Women now earn 77 cents on the dollar compared to men. The wage gap increased from 2002 to 2003, but shrunk over the last two years.

Of course, many workers’ experience can be different than the overall trend. Most workers’ earnings grow over their lifetime as they age and gain experience, even though workers as a group, by education or occupation, might have lost ground. The EPI report illustrates this. Workers entering the workforce today generally start at a lower point and advance more slowly than their predecessors did, the report says: “In 1970, a 50-to-54-year-old worker with some college (but not a degree) earned about $48,000 per year (in 2005 dollars) and a 20-24 year-old entering the workforce that year was paid about $23,000. But by 2000, when that same young worker reached the age of 50-54, his annual wage was just under $44,000 — substantially higher than his entry-level earnings but some $4,000 per year less than a similarly educated person in his parents’ generation 30 years earlier.”

“Another view yields the same conclusion: Starting wages (in 2005 dollars) for two different groups of workers (high school-educated workers and those with some college but not a degree) peaked in 1970 at $30,903 and $33,550, respectively, and in 2000, despite ups and downs, still remained below that peak (at $25,944 and $29,180).”

In recent times, economics has become a truly dismal science for working people in America. Most indicators of shared prosperity are down. But then, the state of owning America, a.k.a. the ownership society, is doing quite well.

EPI says the decline of unions, the rise of offshoring jobs, the changes in tax policy, and the freeze in the federal minimum wage have contributed to this inequality. All of those factors are political, and reversible.

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