U.S. employment has grown for thirty-one straight quarters, since late 2010. For only the fifth time in the post-World War II period, the unemployment rate is now below 4 percent. However, the link between low unemployment and wage growth has eroded. Americans’ wages have fallen from 64 percent of GDP to 58 percent from 1980 to 2016. Median wages have stagnated for all income levels except the very top, and the American poverty rate is almost the highest in the rich world. The poor income performance for most Americans has reshaped the nation, contributing to middle-class bitterness, a high poverty rate, and a dispirited electorate.
To make clear how poorly the American standard of living has fared, we compare incomes in the United States to those of similarly rich democracies. The analysis, presented in eleven key facts, paints a picture of a nation whose economy is failing its people.
Wages Have Stagnated
1. Real hourly wages have stagnated for middle-income earners, and have fallen for low-income earners, since 1979.
Wages have stagnated across all income groups, including workers as high as the seventieth percentile. Only the income for those at the very top—the ninety-fifth percentile and higher—have risen rapidly. More recently, there has also been virtually no gain in median wages, increasing at a negligible 0.2 percentage point rate from 2016 to 2017.
International Wage Comparisons
2. Growth in average wages in the United States has been lower than those in many other rich countries.
The U.S. GDP has kept pace with international peers, averaging a 1.5 percent growth rate per year since 2000, which is low by historical standards, but is within the median range compared with similarly rich countries. However, while keeping up in terms of GDP growth, the United States has fallen behind, and often to the back of the pack, in terms of wage growth.
As shown in Figure 1, median wages have not grown in the United States. But to compare wage growth internationally, we must use average wage growth due to data limitations, which can be distorted when high-income individuals make far more than the rest of workers. The high average wage growth in Figure 2 in the United States is a product of income growth for high-earning workers. However, even average wage growth in the United States lags behind average wage growth for workers in other countries—countries that have less income inequality. Norway, Denmark, and New Zealand, for example, have seen steady wage growth despite lower GDP growth during this time.
Average wages mask the large and growing population of workers earning low wages. The percent of workers earning two-thirds of the median wage in the United States has risen to nearly 25 percent—nearly one out of four workers—in 2016. This is a steep increase in the percent and sheer number of workers earning low wages. In the 1970s, this figure hovered around 21 percent.
Unlike in the United States, higher minimum wages in Germany, France, Canada, and Luxembourg, strong collective bargaining in Scandinavian countries, and active labor market policies across the board (see Figure 9) have bolstered wages for most workers elsewhere in the rich world.
4. Mid- to low-income workers in the United States earn less of the nation’s total income than do workers in other countries.
The declining labor share of income has occurred in many rich countries, but nowhere has it declined as much as it has in the United States. In many rich countries, workers earning below the fortieth percentile level earn anywhere from 19 to 24 percent of total income. In the United States, workers in this range (approximately $50,000 per year and less) earn only 16 percent of the income earned.
5. Another dataset shows that the share of income earned by the bottom 50 percent of earners has dropped significantly since 1990 in the United States.
The bottom half of earners in the United States has declined from 17 percent in 1990 to just above 12 percent in 2014. In other countries, like France and the United Kingdom, the bottom half has actually increased since 1990.
Federal Policies and Spending
6. The United States spends less on social expenditures, as a percent of GDP, than do many other rich countries.
The tabulation below includes Medicare and Medicaid, food stamps, disability insurance, and Social Security, as well as tax credits like the Earned Income Tax Credit and the Child Tax Credit. Increasing dependence on tax credits in the past thirty years have not benefited the poor as much as earlier social programs did (See figure 7 below).
7. The share of total federal spending on the poor in the United States has declined.
From more than 70 percent in the early 1990s, now less than 50 percent of federal spending on SNAP, TANF, EITC, CTC, Medicaid, public housing, and SSI goes to people below the poverty line. This is consistent with our general workfare tendencies, and in line with a Republican push to tie benefits like Medicaid to work requirements.
8. The U.S. poverty rate is high after taxes and transfers when compared to similarly wealthy countries.
The United States does not have the highest poverty rate before taxes and transfers. Government policies in peer nations raise a higher proportion of the poor out of poverty than does the United States.
9. In terms of labor market supports, the United States comes in last.
According to the Council of Economic Advisors in 2016, “labor market policy plays an important role in supporting workers with finding good jobs or acquiring new skills to boost their earnings power.” However, there has been a lack of investment in human capital development in the United States, which extends from the public education system to training programs and wage subsidies. For decades the United States has decreased funding for vocational schools and apprenticeships, while touting the value of private colleges. Further, public sector employment is less strong, only recently matching pre-recession public employment levels.
In contrast, a robust vocational system in Germany and Switzerland, and the European Employment Strategy (EES) signed onto by EU countries, continuously aim to improve investment in education and vocational training, as have the European Union’s reformed Public Employment Services (PES). These policies that improve skills and labor market matching enhance job creation and also foster the conditions for improved wages and job quality.
10. In 2016, the United States had the lowest minimum wage relative to median wage.
Adjusted for inflation, the current minimum wage in the United States is worth less than it was in 1968, and the federal minimum wage has not been increased from its current amount, $7.25, since 2009. The real minimum wage in the United States, at less than $15,000 per year, is less than that of all selected countries except for South Korea (adjusted for Purchasing Power Parity (PPP)). If the minimum wage in the United States were to increase even to $10 per hour, the ratio for the United States would be closer to 50 percent of median income, more in line with other rich countries. Increasing the minimum wage would also raise family incomes and reduce poverty.
More than forty localities in the United States—cities and counties—have increased their local minimum wage. But state-based pre-emption laws are on the rise, particularly in Republican states, to ban minimum wage increases at the city, county, and local level.
11. The United States has a smaller percent of total workforce that belongs to a union than all selected countries.
With the percent of U.S. employees covered by unions falling by half from over 20 percent in 1980 to just over 10 percent today, nowhere else within this group of countries has labor been attacked harder. Research clearly demonstrates the importance of labor unions and collective bargaining to support wages and improve working conditions.
America has become a low-wage country, not by accident, but by enacting specific policies, or failing to enact policies (like minimum wage increases), that have allowed U.S. workers to fall behind. With labor market policies more in line with peer nations, many of these trends could be reversed.