Real Wages for U.S. Workers: Decades of Stagnation

At first glance, it seems like a great time to be an American worker. As of July, the U.S. unemployment rate stands at a nearly 20-year low of 3.9%, with private-sector employers achieving an impressive streak of 101 consecutive months of job growth. Since the end of the Great Recession in early 2010, 19.5 million jobs have been created, including 1.5 million since the start of the year.

However, despite this robust job market, wages haven’t grown as economists might expect. Real average wages, which account for inflation, have barely improved in decades. While there have been fluctuations, today’s wages hold roughly the same purchasing power as 40 years ago. Moreover, the modest wage increases that have occurred have disproportionately benefited the top-earning workers.

The Disconnect Between Jobs and Paychecks

This growing divide between job availability and stagnant wages has driven activism around raising minimum wages in many states and cities. It’s also become a talking point in numerous congressional campaigns this year.

The Bureau of Labor Statistics (BLS) reports that average hourly earnings for non-management private-sector workers reached $22.65 in July, marking a 2.7% rise compared to the previous year. It aligns with the average annual wage growth rate of 2% to 3% observed since 2013. By comparison, in the years leading up to the 2007–08 financial crisis, hourly wages often grew at an annual rate of 4%. During the 1970s and early 1980s, high inflation and yearly wage increases sometimes reached 7% to 9%.

Yet, after adjusting for inflation, the purchasing power of today’s average hourly earnings remains nearly unchanged since 1978. After peaking in January 1973, when $4.03 an hour had the purchasing power of $23.68 today, wages experienced a steady decline through the 1980s and 1990s, with inconsistent recovery since.

Weekly Earnings Tell a Similar Story

The “usual weekly earnings” of full-time wage and salary workers offer a comparable view. Since the data series began in 1979, median weekly earnings in current dollars have increased from $232 to $879 in the second quarter of this year. While that sounds like a significant increase, adjusting for inflation reveals a different story: $232 in 1979 has the purchasing power of $840 today, showing that the median has barely shifted over four decades.

Wage Gains Favor the Wealthiest Workers

Wage growth has been uneven, favoring the highest earners. Since 2000, real weekly wages have risen by 3% for workers in the lowest tenth of the income distribution, while those in the lower quarter have experienced a 4.3% increase. The top tenth of earners have seen their usual weekly earnings grow by 15.7%, reaching $2,112 – almost five times the $426 earned weekly by those in the bottom tenth.

The Role of Benefits in Stagnating Wages

Wages aren’t the only form of worker compensation; benefits like health insurance, retirement contributions, tuition assistance, and transit subsidies also play a role. However, according to BLS data, wages and salaries remain the most significant compensation component, accounting for about 70% of total earnings.

In recent years, benefit costs have risen faster than wages. Since 2001, total benefit costs for civilian workers have grown by 22.5% in inflation-adjusted terms, compared to just 5.3% growth for wages and salaries. Rising health insurance costs, in particular, may be limiting employers’ ability or willingness to increase cash wages.

Other Factors Behind Wage Stagnation

Economists and analysts have offered various explanations for sluggish wage growth, though no single theory has gained unanimous agreement. Possible factors include:

• The reduction in labor union influence.

• Stagnating educational attainment compared to other nations.

• Non-compete clauses and other restrictions that make job-switching difficult.

• Many potential workers remain outside the formal labor force, neither employed nor actively searching for work.

• A shift from high-paying manufacturing jobs to growth in lower-wage service industries.

Wage Growth and Income Inequality

Low wages have been a significant factor in the widening income inequality gap in the US. According to a 2016 Pew Research Center analysis of Census Bureau data, those in the top tenth of the income scale earned $109,578, 8.7 times the $12,523 earned by the bottom tenth. In 1970, the top tenth earned 6.9 times the income of the bottom tenth, with earnings of $63,512 compared to $9,212 – a difference that has grown significantly over time.