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Mind the Gap: Why Wage Growth is Falling Behind

Previous House Budget Plan: A Blueprint for Disaster
By Ray Inoue ·

Eight years after the end of the Great Recession, job growth is steady, unemployment is down and interest rates remain low. Yet, American wage growth — the rate at which pay raises are given – is not where it should be

Typically, when the economy undergoes a sustained period of expansion (as it did throughout the Obama presidency), wages tend to follow, allowing workers to enjoy bigger paychecks and better benefits.

But according to this article in The New York Times, “year-over-year wage growth plodded along at 2.5 percent.” According to an analysis by the Economic Policy Institute, that’s well below the target growth rate of 3.5 percent to 4 percent, which is required for our economy to truly recover. 

But what does all this mean for most Americans? A recent USA Today article breaks it down:

Younger people are entering the workforce but aren’t being paid as much they used to.

Baby boomers at the peak of their earnings are retiring at a rate of nearly 10,000 workers a day. They are being replaced by younger workers who are not only paid less compared to older workers, but also have smaller “real” wages – earnings adjusted for rising prices – compared to their counterparts in the 1970s.

Workers are asking for raises less frequently.

With the memory of the financial collapse of the previous decade still fresh, people have been reluctant to ask for raises like they typically do when the economy is flourishing.

Part-time workers are taking lower-than-median pay to upgrade to full-time jobs.

During the Great Recession, part-time job growth soared as full-time jobs plummeted in number. According to the Federal Reserve Bank of San Francisco, some 80 percent of full-time jobs offered to part-time workers during the last eight years were far below the median national wage, causing wage growth to plummet. 

But there’s another important facet to this overall phenomenon: Unions, which are coming under increasing attack, are on the decline. (One of the few exceptions is AFSCME, which added 12,000 members last year). 

The growing number of right-to-work states and anti-union laws is making it more difficult for unions to bargain for better wages and benefits for workers. As EPI noted in one of its recent studies, the decline of unions has worsened wage inequality by “dampening the pay of nonunion workers” and reducing the share of workers who directly benefit from belonging to unions. 

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