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Median Wage Trails Former Peak, Study Says

Income: Real earnings were 3.1% lower in 1997 than in 1989, and inequality is increasing.

September 07, 1998|From Bloomberg News

The median wage for U.S. workers still trails the peak reached before the last recession and income inequality is growing, even in a positive economic environment of strong job growth, rising productivity and tame inflation, a new study shows.

Real, inflation-adjusted earnings, though rising, were 3.1% lower last year than in 1989 for workers paid the median hourly wage, according to a study by the Economic Policy Institute.

Through the first six months of this year, the real median wage of $11.13 is closer but has yet to match the $11.30 earned before the 1990-91 recession, the institute said. However, the study says household income--the total income of all members of an average household--moved ahead of 1989 levels last year.

Debate about income distribution is often political, but economists generally agree that lower-paid U.S. wage earners have shared little, if any, of the fruits of the 1990s' fast-growing economy. The Economic Policy Institute, a liberal-leaning policy-analysis organization in Washington, is respected by many conservative analysts, who nonetheless argue that emphasis on the hourly wage data can be misleading, missing important changes in the labor economy, such as the growth in salaried workers, flexible working arrangements and other patterns.

Statistics indicate that income inequality between the poor and rich in the U.S. narrowed substantially after World War II but has widened since 1980. Until 1989, the average hourly worker at least grew wealthier, albeit at a slower rate than wealthier Americans. But that average worker actually became progressively worse off each year from 1989 until 1995.

"The recent gain in wages is a welcome reversal of long-term wage decline," said Jared Bernstein, an economist at the EPI and one of the authors of the study. But, he added, "most working families are still playing catch-up."

Working families in the 1990s have faced increased hours of work, stagnant or falling incomes, and less secure jobs offering fewer benefits, he said, which have all contributed to inequality in wages and family income.

Last month, Federal Reserve Board Chairman Alan Greenspan said the best thing Fed policymakers can do to ensure that income inequality doesn't worsen in the U.S. is to strive for price stability.

Optimisim about the U.S. economy in recent years has obscured the stagnation among most wage earners. There's a tendency to lump "together the Bill Gates at the top of the wage scale, [with] the person who cleans his office at the very bottom," Bernstein said. "That worker doesn't benefit from the rising stock market. That worker depends on her paycheck and not her portfolio."

The very lowest-wage workers saw their earnings rise 1.4% during the '90s--in part reflecting the boost in the minimum wage, the study showed. "The fruits of the growing economy are continually more concentrated among those at the top of the wage scale," Bernstein said.

Executive pay more than doubled between 1989 and 1997, the study noted, jumping to "116 times the pay of the average worker--an almost eightfold increase since 1965." Between 1989 and 1997, executive pay--including salaries, bonuses and returns from stock options--grew 100%.

Moreover, the record profitability of companies in the 1990s has come partly at the expense of their workers, the report said.

"Had profitability grown at historically normal levels, hourly compensation could have been 7% higher in 1997 than it actually was," the report said.

The key way of closing the wage gap is by keeping the nation's unemployment rate below 5%, the study said. Unemployment was 4.5% in August and has stayed below 5% since July 1997, Labor Department figures show.

However, there is the risk of the gap widening, Bernstein said, as the economy cools, reflecting the effect of global financial turmoil on U.S. export demand.

Other findings in the study:

* Median family income was $1,000 less in 1996 than in 1989-- down 2.3%. Data may eventually show these income levels likely returned to 1989 levels by late last year, the report said. Still, "it has taken the median family longer to regain its pre-recession income level in this recovery than in any other since World War II."

* The typical married-couple working family worked 247 more hours--an additional six weeks annually--in 1996 than in 1989 in order to boost their incomes, the report said.

* The typical middle-class family had nearly 3% less wealth in 1997 than in 1989, even with stock prices reaching record levels during that time. That's because "the richest 10% of households in the U.S have reaped 85.8% of growth in the stock market since 1989."

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