NY Times, Oct. 7 2014 The Great Wage Slowdown of the 21st Century by David Leonhardt
American workers have been receiving meager pay increases for so long now that it’s reasonable to talk in sweeping terms about the trend. It is the great wage slowdown of the 21st century. The typical American family makes less than the typical family did 15 years ago, a statement that hadn’t previously been true since the Great Depression. Even as the unemployment rate has fallen in the last few years, wage growth has remained mediocre. Last week’s jobs report offered the latest evidence: The jobless rate fell below 6 percent, yet hourly pay has risen just 2 percent over the last year, not much faster than inflation. The combination has puzzled economists and frustrated workers. Of course, there is a long history of pessimistic predictions about dark new economic eras, and those predictions are generally wrong. But things have been disappointing for long enough now that we should take the pessimistic case seriously. In some fundamental way, the economy seems broken. I probably don’t need to persuade most readers of this view, so the better way to think about the issue may be to consider the optimistic case. And last week, in his most substantive speech on domestic policy in months, President Obama laid out that case. It included the usual set of glass-half-full statistics and wishful-thinking proposals that officeholders talk about during political campaigns. More notable, though, was that Mr. Obama – speaking at Northwestern University – explained why he thought wage growth was likely to pick up. “If we take the necessary steps to build on the foundation,” he said, after a litany of the good news, “I promise you, over the next 10 years we’ll build an economy where wage growth is stronger than it was in the past three decades.” He may or may not be right about that. But the speech laid out the issues in unusually clear terms. And by any definition, the great wage slowdown – or its end – is one of the most important subjects in the country today. You can think of Mr. Obama’s argument as falling into two categories (even if he didn’t say so): the reasons that overall economic growth may accelerate, and the reasons that middle- and low-income workers may benefit more from that growth than they have lately. Both factors have contributed to the wage slowdown. The size of the pie hasn’t been growing very fast, and most of the increases have gone to a small share of already well-fed families. On the growth side of the ledger, both energy and education have been problems. The cost of energy, after temporarily falling in the 1990s, returned to its post-1970s norm in recent years and acted like a tax on the rest of the economy. Education, meanwhile, is the lifeblood of economic growth, allowing people to do entirely new tasks (cure a disease, invent the Internet) or to do old ones with less time and expense. Yet educational attainment has slowed so much that the United States has lost its once-enormous global lead. On both fronts, the country has been making progress, Mr. Obama rightly noted. The fracking boom and a more modest clean-energy boom have increased this country’s share of energy production and held down costs worldwide. The price of oil has been mostly flat for three years. And the number of high-school and college graduates is rising. The financial crisis deserves some perverse credit, because it sent people fleeing back to school, much as the Great Depression did. But some of the efforts to improve school performance – by raising standards and accountability – are also playing a role. Last year, 33.6 percent of 25- to 29-year-olds had a four-year college degree, up from 30.8 percent in 2008, according to the National Center for Education Statistics. That leaves a lot of room for further improvement, but it’s more progress than in prior years. In 2000, the share was 29.1 percent. Mr. Obama didn’t mention her in the speech, but another reason for optimism at the White House is Janet Yellen, who took over the Federal Reserve this year. Under Ben Bernanke, her predecessor, the Fed was heroically creative in fighting the financial crisis. After the crisis, though, Fed officials made the same mistake repeatedly: overestimating the health of the economy. Ms. Yellen has suggested that she’s learned that lesson and will be even more aggressive about trying to lift growth with low interest rates. As far the other entry in the ledger, the biggest reason to think economic growth may translate more directly into wage gains is the turnabout in health costs. After years of rapid increases, they have slowed sharply in the last three years. Mr. Obama likes to give more credit to the 2010 health care law than most observers do, but he’s not wrong about the trend’s significance. Health costs take a direct bite out of paychecks. Employers don’t have some secret stash of money to pay for health insurance; when it becomes more expensive, there is less money left for salaries. It’s no accident that the best period of wage growth in the last 40 years – the late 1990s – was also a period of quiescent health inflation. If you’re skeptical that these trends are actually encouraging, take a minute to play an alternate-history game. Imagine someone had come to you a few years ago and predicted that health inflation would slow sharply, that the cost of oil would be flat, that the United States would soon produce more oil than it imports and that both the high-school and college graduation rates would rise. Most of us would not have replied: Yeah, that all sounds right. But here’s where I become less optimistic than the president. Imagine that same prognosticator had added one more bit of clairvoyance: Despite all those positive trends, the real median weekly pay of full-time workers in mid-2014 would be slightly lower than in it was mid-2011. Or than it was in mid-2008, the year before Mr. Obama took office. Or in mid-2000. It’s certainly possible that we’re on the verge of a pay surge, much as we were in the mid-1990s, when the situation also seemed bleak. It’s also possible that the forces behind the great wage slowdown – from globalization to our often-sclerotic government to (at least for many workers) technological change – are still more powerful than the positive forces. In that case, the wage slowdown won’t end until the country makes much more progress in improving education, cutting medical waste and energy costs and creating a more responsive, nimble government. Either way, the great wage slowdown, or the end of it, will help set the tone for American life in the coming decade. It has already done so in the century’s first 15 years, causing widespread unhappiness with the country’s direction and leading voters to shift partisan directions multiple times. The political turmoil isn’t likely to end until the economic reality changes. The Upshot provides news, analysis and graphics about politics, policy and everyday life. Follow us on Facebook and Twitter. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
