Home > Uncategorized > This is Why Wages Haven’t Increased in 50 Years

Comments 1 Comment

Most experts will agree the economy has improved dramatically from its pale, feeble days during and directly after the Great Recession. Unemployment is down (even if there are a few caveats), low interest rates make it easier to make big purchases, and the stock market has largely recovered, except for a few bumps along the way. So why aren’t people rejoicing? The answer is simple: Their wages aren’t growing enough to afford the post-recession celebration.

In fact, several analyses show that “real wages” — the ones that adjust income and buying power with inflation over time — haven’t grown in decades. One chart from the Pew Research Center shown below illustrates that wages have barely budged in 50 years, growing just over a dollar in purchasing power since 1964. The average hourly wage in the United States in 2014 was $20.67. When you take inflation into account, that buys roughly the same amount of stuff that the average wage of $2.50 did in 1964, give or take a few cents.


Our economy doesn’t exist in a vacuum, and neither do wages. They’re impacted by a number of complex factors, which is why the President has more than 30 economic experts advising him at any given time. However, to simplify things we’ve taken a look at some of the biggest items to influence wages in the last several years, and why people haven’t experienced the bump in their paychecks they really need — even if they’re getting an annual raise. (And that’s not even a guarantee anymore.)

Who Experiences Wage Stagnation?

Pew, along other sources, point to 1979 as the year when purchasing power was roughly the same as it is today. For that reason, you’ll find many models that compare today’s wages with that year.

For example, you’ll find that when we talk about wage stagnation, we’re really only talking about low- and middle-income earners in the United States. A chart from the left-leaning Economic Policy Institute (EPI) shows why — middle-wage earners saw their incomes rise just 6% over from 1979 to 2013, while the lowest wage earners lost about 5% of their wages. In that same time period, the top earners in the country experienced a wage growth of 41%. The growth of middle-income earners was only because of a boost around 1999 — wages were stagnant for 20 years before that, and another 10-plus years following it.

Why Wages Haven’t Grown

People can point to a number of reasons why wages haven’t grown in a real, useable sense in years. Some of it has to do with economic policy, and some of it happens organically when recessions hit — wages grow and shrink just like any other economic indicator. However, there are some more obvious factors that have hit wages particularly hard, causing most people to see little increase in their spending power over time. Here are a few of them.

1. The Cost of Benefits Has Skyrocketed

Wages and salaries might make up about 70% of how employees are compensated, but those aren’t the only costs of employment that companies need to balance. Unfortunately, the rising costs of the other 30% is contributing to wage suppression. Health care, one of the most obvious and costly forms of employee benefits, have notoriously skyrocketed, completely out of the control of workers themselves.

Overall, the cost of benefits to employers has risen roughly 284% from 1982 until the end of 2015, according to data from the Bureau of Labor Statistics. (We averaged the employment cost index for benefits from each year, then calculated the percent change over time.) With those kinds of increases, it’s not a huge leap to conclude that executives have balanced their books by compensating the larger benefits costs with stagnated wages — even if the benefits don’t change much on the surface.

2. Globalization & Technology Have a Significant Role

Both globalization and technology advances have made it easier for businesses to accomplish their goals for less money. However, that also means that other companies can get in on the action — and drive up competition. To keep costs low and stay competitive, many businesses are stagnating wages to meet their bottom line objectives, U.S. News & World Report argues. “The intensification of competition makes it very hard to simply pass along the increased costs,” Robert Shapiro, an economist with the Brookings Institution, told U.S. News. Somebody’s got to lose money in the business equation, and in many cases it’s employees.

3. CEOs Are Taking a Larger Cut

As we’ve written about before, CEO pay has skyrocketed in the past several decades, a trend that helps the people who are taking the most risks and (presumably) doing the most work. However, this leaves much, much less money in the company coffers to boost wages for the majority of employees.

Another chart from EPI shows CEOs make roughly 296 times what the average employee makes at their company. In most cases, CEO wage increases aren’t tied to extra company productivity, but do help to explain the gap between the typical worker’s salary and productivity overall. It used to be that company productivity increases also led to average employee wage increases. However, that’s not the case anymore, with productivity far outpacing worker salaries and wages.

The One Bright Spot With Wages in America

It’s easy to become Eeyore-like about wage stagnation in this country, especially since we haven’t seen any real increases to speak of in the past several decades, but particularly since the recession. However, there is a small shard of a silver lining in all of this: After years of post-recession stalling, wages are starting to go up in larger increments.

The June 2016 jobs report from the Bureau of Labor Statistics shows that jobs are hiring hundreds of thousands of new employees. But more relevant to this topic is that wages have also increased to an average of $25.61 per hour in June 2016, representing a 2.6% increase compared to the previous year. Is that anything to go crazy about? Maybe not. The EPI recommends that year-over-year wage increases need to get into the 3.5% or 4% range for workers to really experience any positive effects on their livelihoods.

However, the organization also put together a chart showing there is reason to be cautiously optimistic. The 2.6% year-over-year increase in wages is the highest level we’ve seen in almost seven years, since 2009 around the time the recession ended. That’s not large, considering that most year-over-year increases in decades past were around 4% in the years right before the Great Recession, and in the 8-9% range during the height of inflation in the 1970s and 1980s. However, if the upward trend continues, and the labor market remains tight (with unemployment low), we might start to see some changes in a positive direction. For the sake of our paychecks, let’s hope so.

This article originally appeared on The Cheat Sheet.  

[Editor’s Note: Your income doesn’t directly affect your credit, but low wages or a bout of unemployment can make it harder make loan payments or keep credit card debt under control, which can hurt your scores. To see where your credit currently stands, you can view two of your credit scores for free, updated every 14 days, on Credit.com.]


More Money-Saving Reads:

Image: PeopleImages

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

  • truthbetold

    So, basically greed. We can attribute our misery to pure, unfettered, greed.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team