One of the most vexing and puzzling problems in the U.S. economy is wage stagnation. There are many proposed culprits -- globalization and foreign competition, the decline of unions, automation, outsourcing and industrial concentration. Plenty of high-quality research is being done to disentangle these causes. But stepping back and looking at the history of wages in the U.S. over the past half-century provides a few clues -- as well as raising some intriguing mysteries.
Since 1964, when data first became available, average hourly earnings for production and nonsupervisory workers have increased more or less steadily, from $2.50 an hour then to about $23.00 today:
But this doesn’t account for inflation, which raises the prices of consumer goods and thus reduces the real value of the wages workers receive. There are two main measures of consumer price inflation -- the consumer price index and the personal consumption expenditure index. Adjusting wages for these two measures yields a very different picture:
PCE inflation is generally lower than CPI inflation, due to different data sources and different methods of weighting the importance of things like rent and health care. So if PCE is used, real wages will look higher than with CPI. But both measures show the same thing -- a drop in real wages from about 1973 through 1994, followed by a bumpy rise from then on.
The fact that wages have risen since the mid-1990s challenges some of the most prominent narratives about wage stagnation. The so-called China shock, as well as the rise of offshoring more generally, happened in the 2000s. Manufacturing employment fell off a cliff in that decade. Private-sector unionization was falling throughout the period. Automation and computerization have only accelerated. The market power of dominant companies has increased. Yet none of these halted the trend of rising real wages.
Now, that doesn’t prove that these factors aren’t important. If unionization had been higher, automation slower, or global competition less intense, wages might have risen even more than they did during the past 24 years. But wages rose nonetheless, and the stark contrast with the decline in the two decades before 1994 suggests that other important factors are at work.
One of those factors is health care. The wage graphs above don’t include benefits like health insurance. From the 1960s through the turn of the century, total compensation grew much faster than wages :
A big factor in this divergence is probably the rise in health-care prices, which has translated into rises in insurance premiums:
This factor looks like it was especially important during the 1980s.
A second factor was productivity, which slowed between the early 1970s and the mid-1990s, exactly when wage growth slowed as well. But this can’t explain all of the wage stagnation, since total compensation has lagged productivity since that time: