Stagnating U.S. Wages Seen As Threat To Business Growth

This Labor Day, the Americans who really have reason to celebrate are those at the top of the income ladder, according to a new report. The study, from the liberal-leaning Economic Policy Institute, finds that despite faster productivity growth in recent years, real income for the typical family is lower than in 2000.

“The unprecedented split between growth and living standards is the defining economic challenge of our day, and it’s begging for an activist agenda,” says Jared Bernstein, EPI senior economist and co-author of The State of Working America (2006-2007 edition).

Bernstein’s policy prescription includes raising the minimum wage, making it easier for workers to form unions, implementing universal health care coverage and “achieving truly full employment.”

Another view of how to close the gap comes from Martin Regalia, chief economist of the U.S. Chamber of Commerce. He asserts that the growing schism between rich and poor can be narrowed through continued economic growth, reducing regulatory and tax burdens on corporations, expanding energy sources, upgrading infrastructure and lowering the trade deficit. He also emphasized that more training and education of U.S. workers would substantially increase their wages.

“If you look at the statistics we get on the returns to education, they are phenomenal,” he says.

But the EPI report shows that the real hourly wage for college graduates grew just 1.3 percent from 2000 to 2005 after soaring 11.3 percent from 1995 to 2000.

With the election coming in just over two months, many Washington groups competed to frame the debate around national wage and employment statistics. A Department of Labor report released on Aug. 31 asserted that unemployment has reached new lows and wages have attained new heights.

The department stated that in 2005 real hourly wages were 1.9 percent higher than in 2000, compared to the 1.1 percent rise in wages from 1990-95. It also cited gains for women, minorities and veterans.

“Globalization is tilting against the bargaining power of blue- and white-collar workers alike,” Bernstein says.

Paul Clark, head of the department of labor studies and employment relations at Pennsylvania State University, says that employers gain in the short run when wages fail to rise. But he argues that moving toward a low-wage economy could eventually pinch companies as workers have less to spend and government struggles to raise revenue for education and infrastructure.

“If this continues, I just can’t imagine that it really is good for anybody,” Clark says.

According to the EPI, productivity grew 13.4 percent during the booming period from 1995 to 2000, and even faster—16.6 percent—from 2000 to 2005. Yet median family income, which grew 11.3 percent in the latter 1990s, fell 2.9 percent in the fast productivity growth of the early 2000s, the EPI says. Meanwhile, incomes of the best-off families have grown rapidly.

The EPI report comes on the heels of a U.S. Census Bureau study finding that real median household income in the United States rose by 1.1 percent from 2004 to 2005, reaching $46,326. But real median earnings of both men and women who worked full time and year round declined.

U.S. business leaders have been relatively quiet amid a growing debate about economic insecurity felt by Americans in an era of frequent layoffs, increased offshoring and pared-back benefits. Some analysts say corporate heads would be wise to take a larger role in the discussion.

John Challenger, chief executive of outplacement provider Challenger, Gray & Christmas, suggests that evidence of stagnant wages for many workers provides an opportunity for smart firms to stand out from the pack in terms of better pay and benefits.

“Companies are more worried today about retention than they have been in a long time,” he says. “It’s time for them to be investing more in their workers.”

—Ed Frauenheim and Mark Schoeff Jr.