The economic expansion and bull market don't seem to be trickling down wealth to the average American worker.
Though unemployment is just 3.9 percent and there have been 101 straight months of job growth, wage growth continues to lag—and real wage growth is nonexistent, according to a report published in August 2018 by the Pew Research Center, and most gains have gone to the highest tier of earners. In fact, the report says, today’s real average wage has almost the same purchasing power as it did 40 years ago,
Stagnant wage growth is often cited as a factor in widening income inequality, according to the report, which was written by Drew DeSilver, a senior writer at the Pew Research Center. Factors that might be causing stagnancy include employee benefit packages, the decline in unions, lower levels of educational attainment, non-compete clauses and other limitations on job switching, a large pool of workers unaccounted for in labor force statistics and the decline in manufacturing and production jobs.
According to Pew’s analysis of data from the Bureau of Labor Statistics, the average hourly wage has increased from $2.50 at the beginning of 1964 to $22.65 in July 2018. When inflation is accounted for by tracking the hourly wage in constant 2018 dollars, the average wage has increased less than 12 percent, from $20.27 to $22.65. According to the Pew report, average hourly wages peaked in 1973 at $23.68 in 2018 dollars.
Another Bureau of Labor Statistics measure, usual weekly earnings, rose from $232 in the first quarter of 1979 to $879 in the first quarter of this year—but Pew points out that wages are still flat, since $232 in 1979 had the same purchasing power as $840 in today’s dollars, so weekly wages had grown by less than five percent.
For comparison, from August 1964 to August 2018, the S&P 500 index increased in price from 665 to over 2,800, returning more than 1,900 percent in real-dollar terms when dividends were re-invested
Throughout the bull market, wage growth has been tepid, averaging between 2 percent and 3 percent each year over the past five years. In July, year-over-year wage growth was in line at 2.7 percent. Before the financial crisis, however, average hourly earnings increased by closer to 4 percent year-over year, and in the 1970s and 1980s, average wages often increased by 7 percent or more each year.
Pew argues that most of the gains have actually gone to a small percentage of high earners. Since 2000, weekly wages have risen 3 percent among the lowest decile of earners, but increased 15.7 percent during the same period for the top decile of earners.
Benefits are a likely culprit for the stagnancy. Over the past 40 years, workers have increasingly been compensated with health insurance, retirement account contributions, tuition reimbursement and other benefits. The cost to companies offering benefits has also increased throughout the study period, particularly around health-care benefits. Since 2001, benefit costs have risen 22.5 percent for employers of civilian workers, versus 5.3 percent for wage and salary costs.