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.
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.
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