Michael Stephens — The Supposed Decade of Flat Wages Was Worse Than We Thought

It’s well known that the wages of US workers have become disconnected from productivity growth, with real wages growing much more slowly than advances in productivity over the last several decades. This is a key part of the story of widening income inequality.

But these observed trends actually understate the degree to which working people have been left behind. New research reveals that the US economy is doing a worse job passing on productivity gains to workers than the wage growth (or even stagnation) numbers suggest.

The Levy Institute’s Fernando Rios-Avila and the Atlanta Fed’s Julie Hotchkiss looked back to 1994 and tried to see what proportion of real wage growth since then can be accounted for by key changes in the demographic profile of the labor force: principally, the fact that the average worker has become older (i.e., more experienced) and more educated.

What they found is that over 90 percent of real wage growth between 1994 and 2013 was due to demographic shifts. And the 2002–13 period, commonly referred to as the decade of flat wages, is more accurately described as “a decade of declining real wages within age/education worker profiles.” If we control for demographics, wages are back to where they were in 1998.

Multiplier Effect
The Supposed Decade of Flat Wages Was Worse Than We Thought
Michael Stephens