What is wage stagnation and how does it impact your income? It may be surprising to hear that wages have grown very little in the recent past, despite news stories of a booming stock market, a low unemployment rate, and heightened economic growth. Deregulation and tax relief for businesses and individuals are credited with stimulating corporate growth and hiring.
Flashy news stories following the announcement of the tax cut plan, referenced corporations like AT&T, Comcast, Home Depot, Southwest, American Airlines, Travelers, and Walmart all awarding bonuses to employees. These headlines painted a picture of dramatically increasing compensation.
What is Wage Stagnation?
Data on wage increases reveal a different slant to compensation trends. Wage stagnation occurs when there isn’t a sustained increase in wages in real terms, even when the economy is doing well based on other economic measures.
Data from various surveys indicate a very modest growth in income, and some sources actually show a decline (or at best no increase) in wages when inflation is factored into the equation. Measures for real wage increases show that over the past 15 years, many workers - especially low- and middle-income earners - have gained little or no purchasing power after inflation.
Causes of Wage Stagnation
There is little agreement among experts about the reasons for wage stagnation:
- Some economists believe that rising health care costs have limited the ability of employers to increase wages.
- The decline of manufacturing, increases in automation, and the shift to lower-wage service jobs are also cited as factors.
- The diminished influence of labor unions has impacted the ability of blue-collar workers to pressure employers for higher wages.
- Some experts point to the relatively low level of educational attainment in the United States compared with other industrialized countries.
- Globalization and outsourcing have enabled employers to identify cheaper sources of labor outside the country.
- The emergence of the 'gig economy' and the availability of cheaper freelance labor are also believed by some to suppress wages.
Wage Stagnation Based on Income Level
The Pew Research Center uses data from the U.S. Bureau of Labor Statistics to make the argument that employee wages have stagnated for the past 40 years. Their data indicate that the median usual weekly earnings rose from $232 in the first quarter of 1979 to $879 in the second quarter of 2018. In real, inflation-adjusted terms, that same $232 in 1979 had the equivalent purchasing power to $840 in today’s dollars, which means there has been very little actual increase in earnings.
Pew reports that most wage gains have gone to the highest earners. Since 2000, usual weekly wages have risen 3 percent (in real terms, before inflation) among workers in the lowest 10 percent of the earnings distribution and 4.3 percent among the lowest 25 percent of wage earners. Among workers in the top 10 percent of the distribution, real wages have risen a cumulative 15.7 percent to $2,112 a week – nearly five times the usual weekly earnings of the bottom tenth ($426).
More Income, Less Buying Power
PayScale, a leader in precise on-demand cloud compensation data and software for businesses and individuals, has also developed an index that tracks real wage growth and stagnation. It reveals an even more negative picture of wage growth. PayScale reports that since 2006, wages have risen 12.9 percent overall in the U.S., but when you factor in inflation, 'real wages' have actually fallen by 9.3 percent.
In other words, the income for a typical worker today buys them less than it did in 2006. The PayScale Real Wage Index incorporates the Consumer Price Index (CPI) into The PayScale Index (which tracks nominal wages) and looks at the buying power of wages for full-time private industry workers in the U.S. The index data for the third quarter of 2018 indicated that real wages had actually declined by 1.8 percent since the third quarter of 2017. The PayScale data again showed that blue-collar workers experienced the lowest wage growth.
Industry Trends in Wage Stagnation
The PayScale Index ranks the year-over-year wage growth in 15 industries as of the third quarter of 2018. Growth ranges from 1.7 percent in the real estate sector at the high end, to -1.7 percent for transportation/warehousing at the low end. Industries with a complex service orientation and relatively low impact from globalization have accrued the highest wage gains. These industries include technology, engineering/science, and finance/insurance. Sectors like manufacturing, transportation, and health care (where workers have diminished leverage) have tended to lag.
The complete ranking of year-over-year industry wage growth figures is as follows:
- Real Estate 1.7%
- Technology 1.6%
- Engineering/Science 1.5%
- Finance/Insurance 1.2%
- Retail/Customer Service 1.2%
- Nonprofits 1.1%
- Agencies and Consultancies 0.9%
- Education 0.4%
- Construction -0.2%
- Health Care -0.2%
- Arts/Entertainment/Recreation -0.2%
- Energy and Utilities -0.4%
- Accommodation and Food Services -0.4%
- Manufacturing -0.7%
- Transportation/Warehousing -1.0%
Occupational Trends for Wage Stagnation
The PayScale Index for occupations tracks 19 job categories and found that growth ranged from 3.5 percent in the marketing and advertising field to -3.8 percent in transportation occupations. Occupations with high knowledge and skill requirements like accounting/finance, information technology, and science tended to fare better than areas where workers could more easily be replaced, and which are now less likely to have union leverage. Fields like transportation, manufacturing, installation/maintenance/repair, and food service showed wage declines.
The complete ranking of year-over-year occupational wage growth figures is as follows:
- Marketing and Advertising 3.5%
- Accounting and Finance 1.8%
- Social Service 1.6%
- Information Technology 1.3%
- Science and Biotech 1.2%
- Art and Design 1.1%
- Media and Publishing 1.1%
- Human Resources1.0%
- Retail 1.0%
- Architecture and Engineering 0.9%
- Administrative and Clerical 0.7%
- Legal 0.4%
- Sales -0.4%
- Construction -0.5%
- Health Care Practitioners/Technical Health Care -0.8%
- Food Service -0.9%
- Installation/Maintenance/Repair -1.6%
- Manufacturing and Production -3.1%
- Transportation -3.8%