Are Real Wages Rising or
Not? Frank Stricker
Lately, some reporters
have acknowledged that wage growth is not as fast as one would predict with
unemployment below 4%. Some of them question whether unemployment is really as
low as the headline rate. If unemployment is still significant, worker
bargaining power must be weaker than expected. Of course, the low unionization
rate also means employees cannot take full advantage of tighter labor markets.
Real wage growth
hasn’t been all that great. Several reporters (for example, AP writers in the Los Angeles Times business section and Ali
Velshi on MSNBC) are misleading their audiences by focusing only on nominal
wage increases. The other day I saw Mr. Velshi worry that a 2.9% increase in
workers’ pay packets was not as fast as expected in a strong economy. It
wasn’t, but after inflation is factored into the equation, the situation is
much worse.
Could the average
employee buy 2.9% more stuff in December of 2019 than in December of 2018? Nope.
In terms of purchasing power, a rank-and-file worker in the private sector had
a real wage increase over the year of 0.7%. Yes, inflation is on the low side--just
2.3% last year--but that’s enough to eat up modest wage increases of 2 to 3%.
In terms of real pay, the average American worker essentially stood still last
year.
Some low-wage workers
are doing better, due to market conditions and state and local minimum wage
laws. For example, in California, the state minimum jumped 8.3% on January 1 to
$13 an hour and the state’s minimum has been advancing every year since 2017. But
many states and cities do not have their own minimum wage laws. They are
covered by the federal minimum, which is just $7.25 an hour. This absurdly low
minimum ought to go down in history as a sign of just how morally corrupt are many
people in the American leadership classes. And the situation is even worse in
some states. Federal law permits states to allow employers of workers in tipped
occupations to pay as little as $2.13 an hour. Employers are supposed to lift
pay to $7.25 if tips don’t do it. But many employers don’t. In effect, federal
law is an invitation to wage theft.
Last year the Democratic
House of Representatives passed the Raise the Wage Act. It would increase the
federal minimum to $15 and eliminate the tipped-wage provision. The Economic
Policy Institute estimates that a $15 minimum could lift 40 million workers. The
current Senate will not pass this bill, even though it is quite moderate and the
wage would not get to $15 for several years.
I’ve discussed last
year’s wage history, but how about trends? The real hourly wage for
private-sector non-farm rank-and-file workers has finally surpassed the peak it
reached in 1972-1973. Good. But, OMG, it took almost half a century to do it. In
the 19 years since 2000 the average real wage increased a total of 13.7%.
That’s better than many other periods since the 1960s, but at less than 1% a
year, it won’t lift many people to a decent living standard.
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Frank Stricker is a board member of NJFAN and emeritus professor,
California State University, Dominguez Hills. His views are his own and not
those of his organizations. His book, American
Unemployment: Past, Present, and Future, will be out in June.