The Great Wage and Salary Stagnation Crisis

Written by Anthony Garcia   // September 12, 2011   // 6 Comments

median annual earnings on the decline

In my last blog posting I discussed the problem with being hyper frugal. To be clear there’s nothing wrong with being frugal, however one should also concentrate on increasing their income through alternative forms (i.e. web business, blog, etc…), or having their employer recognize their value and push for a raise (if they are performing their job duties). The more I started looking into issues concerning income, primarily for the middle class, the more I came across information highlighting that the problem of lack of middle class wage growth, or lack thereof, is a problem that has it’s origins tracing back to the mid-to-late 1970′s. In other words this is not a problem where one can point the finger at any given political party.

 

The Hamilton Project and Report

According to a report from the Hamilton Project, authored by Michael Greenstone a professor of economics at MIT, and Adam Looney who is a senior fellow at the Brookings:

“Over the past 40 years, a period in which U.S. GDP per capita more than doubled after adjusting for inflation, the annual earnings of the median prime-aged male has actually fallen by 28 percent. Indeed, males at the middle of the distribution now earn about the same as their counterparts in the 1950s!”

Rising Costs

Now before I go into how scary this is I want to examine what they believe is causing this. They argue that the primary cause is declining opportunity. Well, that seems like common sense given that if opportunities were to be on the rise that would mean demand for labor is on the rise, which could mean that labor would have the upper hand when it comes to wages. More specifically this sub group of less educated men are the primary target of this decline in opportunities, and the work men used to do, with relatively low education needed, is no longer in demand due to technological shifts and globalization.

Simply put changes in technology and globalization, as most would probably assume, have really pushed out the need for less educated men without any specialized skills or college degrees.  Generally speaking,  at the same time men have largely stopped learning new skills or seeking more education to keep up with the demands of the highly globalized and technologically advanced economy. Those group of men who have remained in the labor market without any serious declines in wages or opportunities are those that are highly skilled and typically have a college education.

Men that have suffered the most from the decline in wages are those with less than a high school diploma. Men in this group have had wages drop approximately 66 percent between 1966-2009 according to this report.

The bottom line of this report is that men, especially less educated men, have lost significant ground against technology, and in order to change this trend men need to complete high school and college. Education and gaining valuable skill sets to keep up with the change in technology and the demanding economy is crucial for labor among this sub group of Americans to help shift the tide of wage declines.

I couldn’t agree more with the conclusions or policy items suggested in this report. Women, from what was implied, are doing a relatively good job of continuing their educational advancement which is at a higher rate than that of men.

The Atlantic Article “The Great Recession and the Real Reason Americans Feel so Squeezed” 

In an article written by Derek Thompson in The Atlantic, Derek argues that it’s a multitude of factors including the ones mentioned in the Hamilton report discussed above. He goes on to argue that in addition to the fact that men in large numbers failed to advance their education and skill sets, women “stormed the into the workforce”. Furthermore, those in the workforce, when the shift began to occur (the mid-to-late 1970′s) workers became much more productive.

Ultimately the fact that although GDP double from then til now, wages fell overall by 28 percent means that as workers Americans were much more productive, but their labor became much cheaper. When you add to this change in the household that the price of many important items (higher education, housing, energy, and more) continued to rise dramatically, it is not surprising why Americans are feeling so squeezed. When you look at this closer you see that this problem seems to have little to do with the Great Recession, and in fact has only been exacerbated by the recession.

Rising Costs

Derek’s conclusion is if you want to point the finger at someone you have to point it at everyone. Many Americans want to focus the blame on corporations moving manufacturing overseas. Others will point at technology and software as the culprit of reducing the need for workers. Consumer spending at places like Target and Walmart are also to blame because of the cheap items that are made overseas are being sold to the same people losing their jobs to overseas manufacturers and cheap labor.

Education in Derek’s opinion seems to be a key way to which we can change this shift. The problem with education, however, is that costs are on the rise and this needs to be solved. Healthcare costs also need to decline over time in order to change the tide.

Conclusion

Over and over again as I read articles and studies the consensus seems to be that the primary cause for the decrease in wages and salary stagnation, especially in men, is due to the lack of advancement in skills and education.  When I hear my father’s generation reminiscing about the good old days and how the American dream is more of a mirage for most people I always consider all that has changed between then and now. We live in an era where we have witnessed entrepreneurship at it’s finest, for instance Steve Jobs and Apple. The technological advances of the late 20th century and the early 21st Century have profoundly changed the way in which the world communicates and receives information.

We have witnessed a Presidential election driven by a grass roots movement leveraging social media and the internet in general to catapult a relatively obscure African American candidate, from humble background, to become the country’s first African American President. Regardless of your political disposition the way this occurred could not have been imagined in the 1990′s let alone decades before that.

I guess what was true for me when I was growing up remains true until today, that is get an education. Although my education was in the liberal arts, specifically Political Science, it has helped me tremendously throughout my career. At one point when I was seeing 19 year old guys making six figures in real estate while I was earning my degree I must say I did ask myself “why am I in college”. I studied Political Science because I truly enjoyed it and I was passionate about it. I had no idea I would end up in sales and later marketing, but I do know it provided me valuable skills especially in the area of communication and presentation.

I do truly believe that education and advancing one’s skills is probably the best way to make your way through the “system”. Connections are really important as well, and the benefit of focusing on your education and advancing your skills is that along the way, if you’re relatively social, you make connections along the way with people who share your same interests.

Hopefully, our country moves in a direction of making education more of a priority, and by country I mean people, not rhetoric by politicians. I understand this is going to be really challenging especially in light of the fact that there will be continuous budget cuts, increases in tuition, and the problem of student loan debt. I am perfectly fine with taxes as long as they go to remedy this situation. Thanks for reading through my rambling…What do you think?

I’ll leave you with this video to contemplate.

 

 

 

 

 


6 COMMENTS

  1. By Tax-y Lady, October 23, 2017

    Have you seen the movie Idiocracy? Great movie. Maybe some of my politics are coming out, but I agree. We are falling further behind in education, which creates a downward spiral as we are then less able to compete globally, which means we have less money from innovation and production, which means we have less of a focus on education, and so forth. I am a strong supporter of college (I have 4 degrees myself) and think it is critical for life improvement in many senses of the term. But I caution about the expense of education. Tuition and fees are on the rise (much like health care) and resources are being limited (see, for example, the recent issues with Pell Grants). You need to not only be able to 1) get into a good college, 2) get through college with decent grades so you can get good jobs, 3) find a job in a tough economy, and 4) make enough that you are not in a worse financial place due to student loans than you woudl have been without the education. But I think the problem also goes further- into our culture and how we have begun treating work and education in recent years. With technology and smart phones, you have the theoretical ability to constantly be working, and employers are taking advantage. In education or in work, we need to move back to a successful work/life balance. Then neither education nor work is necessarily such a chore, and we break the spiral.

    Reply
    • By John Dough, October 23, 2017

      Very valid and insightful points. Congratulations on 4 degrees, You are a great example to women in the workforce, especially considering how often I see you write blogs here. I unfortunately only have 6 degrees, and they are all focused on Kevin Bacon.

      Reply
  2. By eMoney, October 23, 2017

    I have only seen parts of Idiocracy. I tried to keep my politics out of this, and I think it doesn’t matter what your politics are, I think we can all agree education is super important.

    You make very valid points, and I completely agree with you in that it is very important to have a work life balance.

    Wow you have 4 degrees? That’s impressive. I’m struggling getting around to take the test to go into a masters program.

    Reply
  3. By dolrdolrbill, October 23, 2017

    Very skillful article. Looks like more people need more skills to get that wage stat to increase along with everything else. Thanks for the information.

    Reply
  4. By John Dough, October 23, 2017

    I like this article, However there seems to be a catch-22 within this hypothesis. If Education is to be the salvation of men and the middle class, how are the less educated and the middle class supposed to pay for this education? Rising tuition costs and job cuts only seem to hinder education. I totally agree that self-improvement will lead to better pay, but that improvement comes at a cost few of us can afford.

    Reply
    • By eMoney, October 23, 2017

      I guess that’s where the politicians come in, and by the looks of it there doesn’t seem to be a solution on the table to deal with this issue of high costs of higher education. I agree, it’s a catch 22.

      Reply

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