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The 50-100 Pay Gap

Despite Recent Pay Hikes, Many American Workers Are Still a Long Way From a Living Wage

Due to decades of wage stagnation, it will take an aggressive set of pro-labor policies for workers to be properly compensated.




After another impressive employment report earlier this month, President Joe Biden trumpeted the strong position in which workers across the United States now find themselves.

“People are making more money,” the president said. “They’re finding better jobs. And after decades of being mistreated and paid too little, more and more American workers have real power now to … get better wages and to do what’s best for themselves and their families.”

That is undoubtedly true. Amid a tight pandemic labor market, the lowest-paid U.S. workers have seen solid gains in their wages, even after taking inflation into account.

But it is also useful to put these recent advances into a broader context. And when you do that, you realize that tens of millions of Americans are still a very long way from making a living wage.

More precisely, even if the growth in pay miraculously continued at the torrid pace it had from 2019 to 2021, it would take a full 10 years for a worker in the 20th percentile of the wage distribution — one who, at $14.09 an hour, makes more than 20% of the labor force but less than the other 80% — to earn a living wage of $20 an hour.

Indeed, most people’s pay has stagnated for so long, the last couple of years have served as something of a corrective — but a very limited one.

The 20th-percentile wage earner saw their inflation-adjusted pay rise by 8.1%, from $13.04 to $14.09 an hour over the 2019-2021 period.

“We’ve dug ourselves a really, really deep hole over the past four decades,” says Lawrence Mishel, a distinguished fellow at the Economic Policy Institute. “You don’t fix that in a year or two.”

Late last year, as one headline after another touted the remarkable rise in workers’ wages and predicted more of the same for this year, I wanted to put the hoopla into proper perspective. So I reached out to Mishel and asked him to do a little math. Here’s what he found:

The 20th-percentile wage earner saw their inflation-adjusted pay rise by $1.05, or 8.1%, from $13.04 to $14.09 an hour over the 2019-2021 period. To get to $20 an hour, such heady growth would have to continue until 2031. For the 20% of workers who make less than that, it would take even longer.

Why $20? Eighty percent of Americans live in a county where an employed adult in the average-size working family would have to earn that much to maintain “a decent standard of living,” according to the nonprofit Living Wage for US. Included in its formula are expenses for housing, food, transportation, health insurance, out-of-pocket medical care, taxes, retirement savings, childcare, other necessities and a 5% margin for unexpected events — all of it adapted to reflect the local cost of living.

For a full-time worker, $20 an hour pencils out to $41,600 a year — hardly a lavish sum anywhere in the country.

Of course, $20 won’t buy as much 10 years down the line as it does now. That’s why Mishel used the inflation-adjusted (as opposed to the nominal) growth rate in wages. In effect, his calculation tells you how long it would take for that 20th-percentile worker to earn the equivalent of $20 an hour today.

Yet what are the odds that such a worker will get there, even by 2031?

Slim, to say the least.

During the entire 1979-2019 period, the 20th-percentile worker’s wage rose by just 14.6% in real terms. In that light, the 8.1% increase over the course of 2020 and 2021 was absolutely blistering.

And keep in mind: It took an extraordinary set of circumstances to trigger this surge.

One factor was that the coronavirus wiped out millions of front-line jobs in leisure and hospitality, travel, retail, education and other sectors, especially in 2020. As low-paid workers in these positions became unemployed or left the labor force entirely, it skewed the entire wage distribution higher.

Beyond this statistical quirk, the government’s aggressive response to the economic fallout from COVID-19 — specifically, the trillions of dollars in stimulus funding — led to a rapid recovery of the job market. That, in turn, has pulled wages upward.

Had a 20th-percentile worker’s wages kept up with the 59.6% increase in productivity since 1979, they would have made $17.78 rather than the $13.04 earned in 2019.

“Low unemployment is a primary reason” for the movement in wages, Mishel says. “And that didn’t happen magically. It was policy.”

But all of this progress is sure to be fleeting unless Washington implements a host of other policies aimed at giving workers more power on a sustained basis. Wage growth has already started to show signs of moderating in recent months.

We need, among other measures, to rewrite labor law to revitalize collective bargaining, as well as to foster new avenues for employees’ voices to be heard; make “full employment” — the point at which most everyone who wants a job can find one and a catalyst for rising wages — a primary goal of government; restore overtime pay so that the majority of salaried workers qualify as they did in the 1970s, not just the 15% who do now; buttress worker protections so that it’s harder for employers to pilfer people’s wages or to misclassify employees as contractors; and transform the federal minimum wage, which has been stuck at $7.25 an hour since 2009, into a genuine living wage.

Otherwise, we are bound to quickly revert to the norm of the last 40 years. Mishel and his Economic Policy Institute colleagues have long documented the trend: From the late 1940s until the late 1970s, pay and benefits for the typical worker rose in lockstep with productivity. In other words, as the nation’s economic output expanded, the workers who made that prosperity possible got their fair share of a growing pie.

But since then, productivity growth has outstripped the growth in workers’ compensation by a huge amount. In fact, had a 20th-percentile worker’s wages kept up with the 59.6% increase in productivity since 1979, they would have made $17.78 rather than the $13.04 earned in 2019, before the pandemic boost in wages.

And how long would it take to close the productivity-pay gap going forward? Using projections for productivity growth by the nonpartisan Congressional Budget Office, Mishel figures that even if wage growth maintained the feverish pace of the past two years, properly rewarding such a worker for the fruits of their labor would not happen until 2032.

Copyright 2022 Capital & Main

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