For Most Americans, Wages Aren’t Just Stagnating — They’re Falling

For Most Americans, Wages Aren’t Just Stagnating — They’re Falling


It’s a testament to the depth and power of the Great Recession that analysts can still come up with reports documenting its effects.

The National Employment Law Project (NELP) released a study yesterday showing what occupations have seen falling wages since 2009. And they’ve found that the biggest wage declines hit the lowest-paying jobs. The recession hit the hardest those who could least afford it. If you want to know where the grassroots energy over the Fight for $15 comes from, it’s in this report.

Overall, real wages — meaning adjusted for inflation — dropped since 2009, so no sector is doing spectacularly well. Indeed, we’ve suffered from stagnating wages in America since at least the year 2000, and with the exception of a small boost in the late 1990s, going all the way back to 1979.

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But the biggest drops came among restaurant workers: Cooks fell 8.9 percent, and food preparation workers fell 7.7 percent. Janitors, home health aides, retail salespersons and maids also experienced deeper wage cuts than the average. The wage declines get worse as you move down the income scale.

Not surprisingly, this corresponds to many of the occupations that are adding the most jobs. As competition increases within those fields, employers can squeeze workers on wages. Outside of registered nurses, the occupations with the highest job growth expectations over the next several years all offer average wages at the median or below. Personal care aides, a growing field as the population ages, had a median hourly wage last year of $9.82 an hour, 6.6 percent below the level in 2009.

This actually upends what we traditionally think about wages. As job growth expands and the pool of hiring dissipates, wages are supposed to go up. But at the sector level that’s not necessarily the case. First of all, with a low employment/population ratio, better job prospects brings out of the woodwork people who previously left the labor force. That means that, while overall the labor market is tightening, in the low-skill sectors, that tightening may not take place.

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What we know is that the recession gave employers the opportunity to bargain down workers on wages, because of the lack of available jobs. They may have created a “new normal” with a new baseline for wages, slipping behind the pre-recession level.

All of this serves as a large argument for increasing the minimum wage. The low-wage worker has no bargaining power, and the recession exacerbated this. It’s worth noting that 22 states and a number of localities increased their minimum wages during the period NELP studied, and yet they still found wage declines. NELP says the declines were lowest among the very bottom rung of workers in their study, and most of these minimum wage hikes are phased in, with more increases to come in the next several years. Some will see unprecedented raises.

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There’s also the impact of voluntary raises from retailers like Walmart, which set a nominal floor for its industry and maybe the entire low-wage sector over time. So while things are bleak for low-wage workers right now, the misery has converted into political action, and the resulting pressure could ameliorate the situation somewhat.

The question is what happens to the rest of American workers? As noted, while low-wage workers suffered the worst in the recession, workers overall remain saddled with stagnating wages, part of a decades-long trend. The Economic Policy Institute, which has been tracking for years the failure of wages to keep up with productivity, released an update of their findings this week, showing that net compensation for the median worker rose a skinny 9.2 percent, total, during the 41-year period from 1973-2014. If wages rose in line with productivity during this period, “there would have been no rise in inequality,” the report argues.

Where is the money earned from higher productivity going, if not into worker paychecks? EPI cites corporate profits, CEO compensation and shareholder-value activities like higher dividends and stock buybacks. And this may be accelerating. The Labor Department found this week that productivity rose 3.3 percent in the 2nd quarter of the year, the fastest quarterly gain in several years. But “unit labor” costs fell during this period, because wage compensation rose only 1.8 percent. So workers are falling even further behind in 2015, despite wins on the minimum wage.

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Both EPI and NELP promote wage-enhancing policies like more freedom to form unions, enforcing rules against wage theft and misclassification of employees as independent contractors, and extending federal protections like overtime pay to more workers (a proposed Obama administration executive order announced in June would do just that). But there are several other possibilities. Preventing financial engineering from allowing investors and executives to leak corporate profits into their bank accounts would certainly help.

In the short-term, the Federal Reserve could help by not making the mistake of tightening monetary policy before wage growth can get going. The unemployment rate, which has fallen over the past several years, should not be seen as the ultimate arbiter of the Fed’s policy decisions. As EPI’s Elise Gould indicates, wage growth has been far below target during the recovery, and it would take 14 years of above-target growth to rebalance the labor share of national income to where it was before the recession.

We’re already seeing how declining wages creates social unrest at the low end of the population. That’s been channeled into positive actions for workers with the Fight for $15. But when will the middle class get its “Fight for 4 percent wage growth”? Will they have to live with a permanent erosion of their earning potential, from graduation to retirement? The wage-earner revolution may be quieter, but it can succeed. In fact, it’s vital to our future.