In recent weeks, several economists have attempted to answer a question that has been gnawing at our field for years: Why aren't wages growing?
It is true that, for most workers, wages have not kept pace with productivity growth. As a result, high-end wage earners — Wall Street traders, CEOs, doctors and other highly paid professionals — have won out at the expense of everyone else. There has also been a considerable shift from wages to profits over the last decade, further benefiting shareholders at the top.
But in the last three years, wages have started to grow. The tightening of the labor market has finally given workers, especially those in the middle and bottom half of the wage ladder, bargaining power to increase their wages. This growth can be measured in a variety of data.
According to the Bureau of Labor Statistics, the weekly earnings of full-time workers in the middle of the income ladder have outpaced inflation by almost four percentage points in the last two years. During the same period, the pay of workers at the 25th percentile — those who earn more than 25% of workers — has outpaced inflation by more than five percentage points.
Weekly earnings can rise for at least two reasons: because workers are getting paid at higher rates, or because they are working more hours. As long as those working more hours are doing so because they choose to, both causes are good. But only higher wage rates produce sustained improvements in standards of living. Fortunately, we are seeing this phenomenon, too: Median wages are now rising at a healthy pace for nearly all groups of workers, according to analysis of Labor Department data by my colleague Brian Dew.
What's more, the median pay of women has risen more rapidly than that of men. And the median pay of both African Americans and Latinos has outpaced inflation by more than five percentage points.
The least-educated workers are also benefiting significantly. Among women between the ages of 25 and 54 who have a high school degree or less, the median hourly wage has outpaced inflation by 2.6 percentage points over the last two years. For men in the same demographic, median wage growth has outpaced inflation by three percentage points. This is especially striking, since these workers are thought to have been left behind by the modern economy.
Notably, all this wage growth took place as the
The only other time in the last four decades that we saw consistent wage gains among middle- and low-income workers was during the late 1990s, when the unemployment rate also fell below the levels that most economists consider sustainable.
Two years of decent wage growth does not come close to offsetting the havoc wrought by the Great Recession, much less the previous three decades of stagnating wages. But it is important to recognize that, for now, things are going in the right direction. Let's not reverse this progress by putting the wrong person in charge of the Fed.
Dean Baker is the co-director of the Center for Economic and Policy Research and the author of "Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer."