Paying for Productivity

BERKELEY – One of the United States’ defining – and disheartening – economic trends over the last 40 years has been real-wage stagnation for most workers. According to a recent US Census report, the median full-time male worker earned $50,033 in 2013, barely distinguishable from the comparable (inflation-adjusted) figure of $49,678 in 1973.

Because most households earn the bulk of their income from their labor, the absence of real-wage growth is a major factor behind the stagnation of family incomes. The average family income of the bottom 90% of households has been flat since about 1980. Real family income for the median household in 2013 was 8% below its 2007 level and nearly 9% below its 1999 peak.

Stagnating middle-class wages and family incomes are a major factor behind the US economy’s slow recovery from the 2007-2009 recession, and pose a serious threat to long-term growth and competitiveness. Household consumption accounts for more than two-thirds of aggregate demand, and consumption growth depends on income growth for the bottom 90%.

The heyday of US economic growth in the two decades after World War II was also a golden era for the middle class. The long boom of the 1990s, when the US enjoyed sustained full employment, was one of few periods in the last 40 years when incomes climbed at every quintile of the income distribution.