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Eight Reasons Why Worker Wages Are Stagnant

Apr 25, 2020 | Finance

In a March 1993 issue of The Nation, Noam Chomsky observed that real wages had fallen to the level of the mid-1960s, part of a wage stagnation trend that spiked sharply in the mid-1980s.

After adjusting for inflation, average hourly earnings peaked more than 45 years ago. The $4.03-an-hour rate earned in January 1973 had the same purchasing power that $23.68 did in 2018. Here’s why wages continue to stagnate to this day:

  • Disappearing blue-collar jobs – A major factor contributing to the stagnation in worker wages is the destruction of the blue-collar job, which has been underway since the 1980s. Between 1980 and 2000, the U.S. lost 2 million manufacturing jobs. That pace accelerated between 2000 and 2017 when 5.5 million manufacturing jobs were lost.
  • China – One popular explanation for wage stagnation, especially among lower-paying jobs in the manufacturing sector is China, which has flooded the market with cheap goods and sapped domestic-manufacturing wages in the process. It should be noted, however, that competition with China only began somewhere in the 1990s.
  • Limited job mobility – Research by Benmelech, and Nittai Bergman and Hyunseob Kim of the National Bureau of Economic Research (NBER), found one hidden culprit: labor-market concentration — too few employers competing for the same workers on a local level. Say a factory employee is dissatisfied with his or her pay and hears a competitor across town is offering higher wages, the employee may be tempted to switch employers. However, if there is no competitor to switch to — i.e. the local labor market is highly concentrated — then the employee must accept the wages offered at the current job.
  • The declining role of unions – NBER research confirms that employee unions can act as a check on local monopsonies. The researchers used data from the Union Membership and Coverage Database and found that even in counties where competition between firms for workers is low, wages were relatively higher when unions were present.
  • Skills mismatch – The gap between the skills workers have and the skills employers need has also contributed to the decline of manufacturing employment. As the manufacturing sector has shifted from low-skilled to high-skilled work, workers who possess higher skill levels, engineers, computer programmers, software developers, etc., have become more sought after than before. As a result, men and women with less than a high-school degree have been hit particularly hard.
  • Male workers bear the brunt – An October 17, 2008 analysis by the Schwartz Center for Economic Analysis at The New School identified a key contributing factor: “something more disturbing is occurring, and a focus on inequality alone does not adequately capture the most important dimension of labor market dynamics — the persistent stagnation of wages for male workers in the past thirty-six years.” This trend is influenced by the educational performance of women. According to the U.S. Department of Education, women first exceeded men in gaining a bachelor’s degree in 1981-82.
  • Process automation – In the past 15 years, technology has steadily ushered in more job-killing automation, including assembly line robots.
  • Money is flowing to the top 1% – Chomsky’s 1993 article presciently concludes, “Of the limited gain in total wealth in the eighties, ’70% accrued to the top 1% of income earners, while the bottom lost absolutely,’ according to M.I.T. economist Rudiger Dornbusch.“

Bottom line, many of you are earning about the same as workers did in 1973, the same year when the Kent State shootings were captivating the nation. It was the year after Time dedicated an issue to the changing vocabulary of America, featuring the term “rip off” on its front cover. Ironically, the rip off of the American workers had also begun.

Today, you’re making what’s colloquially referred to as a “nothingburger.”

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