The growth of income equality has been one of the big economic stories of the last five years.
“Income disparities have become so pronounced that America’s top 10 percent now average nearly nine times as much income as the bottom 90 percent. Americans in the top 1 percent average over 38 times more income than the bottom 90 percent.” This problem has been quietly developing over the last 30 years, according to the Institute for Policy Studies.
A current article in Governing magazine states that, “Real average U.S. wages have remained essentially flat for decades. Last year, average monthly real hourly earnings rose just under 0.5 percent. A review of the latest Labor Department data indicates average inflation-adjusted earnings for private-sector workers are currently below pre-recession levels in about half of the states.”
This is especially puzzling because the U.S. is essentially at full employment. Utah is now below full employment. Freshman economics tells us that as workers become scarce, wages will increase. Yet, the Governing article continues, “Even in some states that have surpassed pre-recession job totals, wages haven’t yet increased.” The states with the best growth — Texas, North Dakota, Alaska, New York and Utah — have enjoyed good job growth, “yet their average private-sector hourly earnings actually have dropped slightly from pre-recession levels when adjusted for inflation.”
A new study from the National Bureau of Economic Research bears out the assertion that workers have been losing ground for much longer than just the last few years. The study measured men’s salaries who entered the workforce in 1967 against those entering in 1983, and found that “median lifetime income of men declined by 10% — 19% [especially] in the lower three-quarters” of wage earners. That trend is not expected to be reversed.
Some more optimistic experts believe American workers have indeed made gains in the last 30 years. Our upswings in our economic cycles have often been principally driven by consistent consumer demand, showing that people do have disposable income. They also say that inflation has been significantly overstated; thus workers have actually enjoyed much better compensation than most statistics show.
Harold Myerson, executive editor of American Prospect, has written that the reasons that middle-class wages have not risen are globalization, jobs being replaced by technology, and the profound decline of union membership and power. Myerson claims that latter-day shareholders have become much more powerful than in former days; thus, “funds corporations earmarked for their own investment, research, technology and raises during the 20th century have been redirected to shareholders in the 21st. Over the past decade, more than 90 percent of Fortune 500 corporations’ net earnings have been funneled to investors.”
How is Utah faring in the wage category? In a recent article in Utah Business by Rachel Madison, Carrie Mayne, chief economist for the Utah Department of Workforce Services, admits to being “befuddled.” She attributes static wages in part to the glut of unemployed labor left over from the Great Recession, which the job market has taken a long time to absorb.
In the same article, Juliette Tennert, director of economic and public policy research at the University of Utah’s Kem C. Gardner Policy Institute, says that retiring baby boomers’ high-end salaries are being replaced by lower salaries that younger workers typically receive. She also says that low-wage jobs are the first to be lost in a recession and the first to come back in a recovery, so they have led the way and depressed the average wage rate.
Mayne also believes “the low wage story in Utah is really about the demographics of Utah’s workforce, specifically age” because wages are lowest for the newest workers in a field.” She also assures us that “in sectors that Utah has recently attracted to the state, such as information technology, low wages aren’t a concern where our wage increases have nearly doubled the national average.”
Utah businesses in certain economic sectors have been able to thrive or just survive because of relatively low wages. Will Utah’s structural low wages yield to worker scarcity? And what will that mean for Utah companies as they compete nationally and internationally? Will higher wages impair Utah’s ability to attract employers, some of whom come here for our low-wage environment?
Greg Bell is the current president and CEO of the Utah Hospital Association. He is a former Republican lieutenant governor of Utah.