What rising middle class?

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This is a long report and only part of it is reproduced here; it is highly recommended that you read the entire piece.  Website; PDF; Downloadable PDF
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A Decade of Flat Wages
The Key Barrier to Shared Prosperity and a Rising Middle Class
By Lawrence Mishel and Heidi Shierholz, August 21, 2013

The nation’s economic discourse has finally shifted from talk of “grand bargain” budget deals to a focus on addressing the economic challenges of the middle class and those aspiring to join the middle class. Growing the economy from the “middle out” has become the new frame for discussing economic policy. This is long overdue; in our view, an economy that does not provide shared prosperity is, by definition, a poorly performing one. Further, such an economy will not provide sustainable growth without relying on consumption fueled by asset bubbles and escalating household debt. The collapse of the housing bubble and the ensuing Great Recession have laid bare the consequences of this model of unbalanced growth.

The revived discussion of strengthening the middle class, however, has so far failed to drill down to the central problem: The wage and benefit growth of the vast majority, including white-collar and blue-collar workers and those with and without a college degree, has stagnated, as the fruits of overall growth have accrued disproportionately to the richest households. The wage-setting mechanism has been broken for a generation but has particularly faltered in the last 10 years, once the robust wage growth of the late 1990s subsided. Corporate profits, on the other hand, are at historic highs. Income growth has been captured by those in the top 1 percent, driven by high profitability and by the tremendous wage growth among executives and in the finance sector (for more on wage and income growth among the top 1 percent, see Bivens and Mishel 2013).

President Obama’s July 24 speech in Galesburg, Ill., marking the kickoff of the White House’s “A Better Bargain for the Middle Class” initiative, illustrates both the best of this recent focus on the middle class and the failure to adequately acknowledge and address the economy’s failure to broadly raise wages. The president appropriately looked back in time, noting:

In the period after World War II, a growing middle class was the engine of our prosperity. Whether you owned a company, swept its floors, or worked anywhere in between, this country offered you a basic bargain—a sense that your hard work would be rewarded with fair wages and benefits, the chance to buy a home, to save for retirement, and, above all, to hand down a better life for your kids.

And he correctly identified what broke down:

But over time, that engine began to stall. That bargain began to fray. . . . The link between higher productivity and people’s wages and salaries was severed—the income of the top 1 percent nearly quadrupled from 1979 to 2007, while the typical family’s barely budged.

However, when it came to strengthening the middle class, the president was too optimistic. Aside from advocating an increase in the minimum wage, the president overlooked what it will take to solve the wage problem, saying:

With new American revolutions in energy, technology, manufacturing, and health care, we are actually poised to reverse the forces that have battered the middle class for so long, and rebuild an economy where everyone who works hard can get ahead.

Innovations in energy, technology, manufacturing, and health care are undoubtedly important. However, in and of themselves, they will not reestablish the broad-based wage growth and improved job quality needed to generate and sustain middle-class income growth. Nor will they, on their own, permit access to a rising middle class for those now left behind.

EPI’s The State of Working America, 12th Edition (Mishel et al. 2012) provides a comprehensive assessment of recent decades’ wage and benefits trends and an extensive analysis of the causes of wage stagnation and wage inequality. In this paper we document the economy’s continuing failure to provide real wage gains for most workers. We track wage trends (and, where possible, compensation trends, which include not just wages but also fringe benefits such as health care and pensions) using both employer-based and household-based survey data. We focus primarily on trends since 2007, the year the Great Recession began. We generally examine year-over-year trends using calendar years, though to assess the most recent trends we also include year-over-year trends using just the first half of each year. We also discuss these trends in the context of patterns since 2000, as the 2000–2007 business cycle—and especially the recovery years of that business cycle, 2002–2007—were characterized by dismal wage growth. In some cases we provide data going back to 1979, as most workers have experienced weak wage growth for more than three decades.

This paper’s key findings include:

• According to every major data source, the vast majority of U.S. workers—including white-collar and blue-collar workers and those with and without a college degree—have endured more than a decade of wage stagnation. Wage growth has significantly underperformed productivity growth regardless of occupation, gender, race/ethnicity, or education level.
• During the Great Recession and its aftermath (i.e., between 2007 and 2012), wages fell for the entire bottom 70 percent of the wage distribution, despite productivity growth of 7.7 percent.
• Weak wage growth predates the Great Recession. Between 2000 and 2007, the median worker saw wage growth of just 2.6 percent, despite productivity growth of 16.0 percent, while the 20th percentile worker saw wage growth of just 1.0 percent and the 80th percentile worker saw wage growth of just 4.6 percent.
• The weak wage growth over 2000–2007, combined with the wage losses for most workers from 2007 to 2012, mean that between 2000 and 2012, wages were flat or declined for the entire bottom 60 percent of the wage distribution (despite productivity growing by nearly 25 percent over this period).
• Wage growth in the very early part of the 2000–2012 period, between 2000 and 2002, was still being bolstered by momentum from the strong wage growth of the late 1990s. Between 2002 and 2012, wages were stagnant or declined for the entire bottom 70 percent of the wage distribution. In other words, the vast majority of wage earners have already experienced a lost decade, one where real wages were either flat or in decline.
• This lost decade for wages comes on the heels of decades of inadequate wage growth. For virtually the entire period since 1979 (with the one exception being the strong wage growth of the late 1990s), wage growth for most workers has been weak. The median worker saw an increase of just 5.0 percent between 1979 and 2012, despite productivity growth of 74.5 percent—while the 20th percentile worker saw wage erosion of 0.4 percent and the 80th percentile worker saw wage growth of just 17.5 percent.

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