Where Have America's Wages Gone?

One of the under-reported stories of our time is the slow disappearance of the middle class and the loss of social mobility. The critical question is why? Why has the economy failed so many people, and what can be done about it?
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A new briefing paper from the Economic Policy Institute provides an overview of the income stagnation currently plaguing the vast majority of Americans. "A Decade of Flat Wages," by Lawrence Mishel and Heidi Shierholz, offers valuable background on one of the under-reported stories of our time: the slow disappearance of the middle class and the loss of social mobility.

The critical question is why? Why has the economy failed so many people, and what can be done about it?

Stuck in the Middle

The authors state the problem clearly and concisely: "The wage and benefit growth of the vast majority ... has stagnated, as the fruits of overall growth have accrued disproportionately to the richest households."

As Mishel and Shierholz note, "The wage-setting mechanism has been broken for a generation but has particularly faltered in the last 10 years ..." Corporate profits have reached historic levels and the top one percent of earners have captured virtually all income growth.

We don't have a problem of inadequate wealth. The problem is inadequate wealth distribution. For 99 percent of Americans, wage growth has lagged significantly behind increases in productivity. As the authors note, this is true "regardless of occupation, gender, race/ethnicity, or education level." Since the Great Recession productivity has grown by 7.7 percent, while wages have actually fallen for the bottom 70 percent of earners.

What's more, as Mishel and Shierholz observe, "This lost decade for wages comes on the heels of decades of inadequate wage growth." Between 2001 and 2012 productivity grew by 22.2 percent, while wages grew only 0.8 percent. This was "the norm in white-collar, blue-collar, and service jobs, with little variation among occupational categories."

These figures challenge the traditional assumption that increased productivity helps everyone. They suggest that something has fundamentally changed, that the wealthiest among us are winning more of our nation's riches than ever before.

The Roots of Crisis

A companion report from EPI, The State of Working America, 12th Edition, identifies some of the causes: Growing inequality. Policy inaction which eroded the value of the minimum wage. The weakening of employees' rights. Tax policy. Wall Street deregulation.

Other factors are left unmentioned, including problems in corporate governance and the distorting effect of changing executive compensation on corporate management practices.

This wage crisis is threatening to destroy the middle class. It endangers the long-successful economic model which used a thriving middle class to purchase goods and services that ensured continued growth.

Now the middle class is withering away. The model of prosperity it supported is being replaced by an increasingly financialized economy. If current trends continue, more than half of all corporate profits will soon be captured by banks and other financial institutions -- from the movement and manipulation of money, rather than from goods and services.

Meanwhile, wages will continue to stagnate and those parts of the economy which depend on middle-class consumers will fall behind.

Architects of Stagnation

How did we find ourselves in this position? Who let this happen?

Mishel and Shierholz praise President Obama's new theme of economic growth from "the middle out," while gently chastising him for neglecting to address the wage problem. But it's likely to take more than gentle chastisement to turn the Democratic leadership around. Too often, Republicans who stigmatize government have been aided by "centrist"Democrats in the Clinton/Obama mold who embrace their "small government is better" rhetoric.

The word "centrist" is placed in quotation marks because polls show that their economic views are to the right of the American mainstream. On issues such as corporate taxation, Social Security benefits, and free trade, they stand to the right of most Americans -- and sometimes to the right of most registered Republicans.

"Centrist" Dems actively participated in the deregulation of Wall Street, which led to runaway financialization of profits while putting the global economy at risk. They pushed free trade agreements that decimated American jobs (and failed to provide adequate rights for workers overseas), a practice which President Obama has continued.

"Centrist" Dems remained silent as corporate leaders paid themselves constantly-inflating salaries and bonus packages, diluted shareholder oversight, and transformed corporations like GE from productive, job-creating entities into financial players fixated on quarterly results -- a fixation which has helped executive pay packages expand exponentially.

It will take a grassroots uprising to redirect the thinking of the "centrist" Democrats toward economic equality.

Why pick on these Democrats? Because Republicans are a lost cause. The Republican Party platform of 1956 boasted of union growth and Social Security expansion under President Eisenhower. But that party is long gone and there's little likelihood it will ever return. Democrats can be pressured by their base, with its preponderance of working people. Republicans who primarily rely on billionaire and/or Tea Party support are largely insulated from that kind of pressure (although there may be some opportunities for populist grassroots alliances).

To be sure, the responsibility doesn't just lie with our political class. Our news media failed to report on the real stories breaking all around us -- stories of lost jobs, lost wages, and lost opportunities.

And we're all partially responsible. By tolerating the narrow spectrum of political choices offered to us, by accepting the proscribed limits of political journalism, we've all contributed to the climate which allows continued wage stagnation and wealth inequality.

Things won't start looking up for most Americans until most Americans send a clear message to their leaders: It's no longer acceptable to favor the few at the expense of the many.

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