Wage Stagnation May Be Ending
The presumed American birthright of rising living standards has been on hold for 15 years. Average hourly pay of blue-collar and clerical workers is slightly lower in purchasing power now than it was in 1973 and has made no progress even in the prosperous mid-1980s. Counting managers, professionals, other self-employed people, and the rising share of employee compensation received as fringe benefits, real earnings per hour have increased only 0.7% a year from 1973 through 1987.</br></br>Income per capita has risen faster than income per hour because a larger share of the adult population is working more hours per capita. In other words, we are working harder for it, and this has its cost in leisure, child care, and home-cooked meals. Per-capita income also rose faster than hourly pay because of the faster rise in interest income and Social Security.</br></br>The reasons for stagnant real wages will be much debated in this election year. But this epoch may now be ending, regardless of who becomes the next president.</br></br>The world's postwar economic boom foundered in the 1970s just when the U.S. labor force was growing at a pace unmatched since early in the century. Pay fell behind oil-fueled price rises partly because plentiful young workers were a drag on productivity. Young and other marginal workers, including swelling ranks of low-income single mothers, lost ground rapidly relative to others in the general retrenchment in the 1980s.</br></br>Intense foreign competition, due mainly to exchange-rate maladjustments, held down wages (as well as prices and profits) in the mid-1980s in all industries exposed to international competition. Some of the lag in average wages stemmed from erosion of union wage scales that were out of line with the rest of the economy. Union wages in manufacturing, construction and transportation have been undermined by spreading nonunion competition. Federal deregulation of the airline and trucking industries accelerated the breakdown of their sheltered wage and price structures by allowing new competition in markets that for decades had been protected.