The Bigger Picture

The recession has wrought real and lasting damage, but in some respects it has simply compounded trends of stagnating wages, declining job quality, and rising insecurity. The basic problem is pretty straightforward: for at least a generation, the wages and incomes of ordinary Iowans have failed to keep pace with the growth of the state and national economies. Labor is more productive — and yet earnings have stagnated. This is just not a consequence of hard times; in recent decades, in fact, workers have lost ground in both good times and bad. Indeed the only break in this trajectory is the strong and shared wage growth of the last half of the 1990s, an intermission in which full employment briefly boosted the bargaining power of workers at all wage levels.  And while it reflects some big and lasting economic changes — globalization, deindustrialization — it is not really a consequence of them. Or at least it is less a consequence of those changes than it is of our political reaction to them — which has been to weaken the policies and institutions (the minimum wage, support of collective bargaining rights) that might sustain broader and lasting security.

Figure 6. U.S. Productivity Spikes While Compensation Sputters

Click above for Figure 6: U.S. Productivity Spikes While Compensation Sputters

Let’s start with wages. At the root of much of our current economic doldrums is the weakness of wages and wage growth. Simply put, when the national economy slowed in the early 1970s, so too did a generation of impressive wage growth. When economic growth recovered, wages did not. For the last 30 years, ordinary Americans have not shared in rising productivity. From 1973 to 2011, labor productivity rose 80.4 percent but the real median hourly wage barely budged (inching up just 4 percent) and real median hourly compensation (including all wages and benefits) didn’t do much better (up just over 10 percent, as Figure 6 underscores).

Treading Water: Wages in Iowa

Figure 7.  Iowa Men, Women Lag Behind National Wages

Click above for Figure 7: Iowa Men, Women Lag Behind National Wages

This pattern of stagnation, interrupted only briefly by modest gains, is apparent in the trajectory of wages over time in Iowa as well. Figure 7 plots Iowa and national wages by sex for the last generation. A few trends stand out. For both men and women at the 20th percentile wage, Iowans have experienced the same wage stagnation as Americans generally. At higher wage percentiles, however, Iowa wages lag behind national wages, particularly at the 80th percentile, indicating Iowa has a scarcity of high-paying jobs. For both Iowa and the nation, women’s wages lag behind those of men, although women — at least those at higher wage levels — have made significant gains over the last 30 years. Iowa men’s wages have stagnated overall — showing slight gains at the top counterbalanced by slight losses elsewhere.

Figure 8.  Income Gaps Smaller in Iowa Than Most of Midwest

Click above for Figure 8: Income Gaps Smaller in Iowa Than Most of Midwest

Overall, Iowa has a somewhat compressed wage structure [see Figure 8]. Our median 2011 wage (half of workers earn more, half earn less) of $15.23/hr is about 80 cents less than the national median ($16.06), and places us in the lower tier of our peer states — only median wage workers in South Dakota, Nebraska and Indiana earn less. At the low-wage, 20th percentile Iowa is just above the national rate and is bested by only three states (Minnesota, Wisconsin and Nebraska) in the region. But at the high-wage, 80th percentile, Iowa ($24.24) is over $4.50 behind the national rate and second to last (besting only South Dakota) in the region.

In order to understand why our wage performance is so weak, we need to turn to some of the underlying circumstances and changes. First, we are losing good jobs and it appears that this economic recovery, like those in the past, is replacing many of those good jobs with poorer jobs. Second, compensation, including wages and benefits is slipping. Third, the return on educational attainment — long a virtual guarantee of upward mobility — has begun to erode. And fourth, the policies and institutions that helped to sustain shared prosperity — things like collective bargaining and the minimum wage — are weakening. Let’s look at each of these in turn.

Iowa Jobs: Out with the Good, In with the Bad

Figure 9. Steepest Job Losses in Higher Wage Sectors

Click above for Figure 9: Steepest Job Losses in Higher Wage Sectors

Across the last generation, and especially across the last two business cycles, we have seen a steady loss of good jobs. The pattern of employment change by sectors since 2007 alone is instructive. As Figure 9 underscores, the steepest recession-era losses came in some of Iowa’s higher wage sectors, including manufacturing and construction. Other high-wage sectors (information, finance, state and local government) continued to shed jobs during the recovery. And those sectors showing net gains across the full business cycle — including education and health services — are at the lower end of the wage spectrum. While we do not know the pay for the specific jobs that were lost or gained, it is clear that, if these jobs were paid the average for their sector, there has been a decline in pay: Jobs lost during the downturn were in sectors with an average annual wage of about $45,100; those added in the recovery were in sectors paying an average annual wage of only $42,400.

Figure 10. Manufacturing Jobs Fall More Sharply, Recover More Slowly Than Other Iowa Nonfarm Jobs

Click above for Figure 10: Manufacturing Jobs Fall More Sharply, Recover More Slowly Than Other Iowa Nonfarm Jobs

Longer term trends are important, too — especially the steady loss of jobs in manufacturing, a sector that has historically delivered decent wages and benefits for even those with lower levels of formal education. Figure 10 shows the trend in Iowa manufacturing jobs since 1990. Our manufacturing job base is a bit smaller than it was in January of 1990, and over 33,000 jobs short of its peak levels at the end of the 1990s.

Figure 11. Jobs Fall in Most Types of Manufacturing in Iowa, 2001-11

Click above for Figure 11: Jobs Fall in Most Types of Manufacturing in Iowa, 2001-11

Figure 11 shows the pattern of job loss and gain within the manufacturing sector: The dots representing sectors are scaled by their employment in 2001, and plotted according to the number of jobs lost or gained (the horizontal axis) and the average annual pay (the vertical axis).

Figure 12. Most Expected Job Growth in Lower-Wage Occupations

Click above for Figure 12: Most Expected Job Growth in Lower-Wage Occupations

And the future doesn’t look much brighter. Figure 12 plots those Iowa occupations projected to add (or lose) at least 100 jobs over the next decade (state-level projections currently cover 2008-18). The base (2008) employment is along the vertical axis; the projected change is along the horizontal access. The dots are shaded by each occupation’s median hourly wage in 2011 — red for those paying less than the state median wage of $15.23, blue for those paying more. With only a couple of exceptions, most of the anticipated growth is at the lower end of the wage spectrum — with retail, office clerks, nursing and home health aides, food preparation, and customer service (all in the upper right of the graph) leading the pack.

We now live and work in an economy dominated by, and in some respects organized around, low-wage work. These jobs do not persist because they are merely “entry-level” jobs or jobs for secondary workers in a family: The vast majority of minimum-wage workers are adults aged 20 or older. As the work of the National Employment Law Project underscores, fully two-thirds of low-wage workers toil for large firms (employing more than 100 workers) and the nation’s leading low-wage employers have more than recovered their profitability. The contrast was drawn starkly this spring, when new figures on family wealth from the Federal Reserve revealed that members of the Walton family (owners of Walmart, the nation’s archetypical low-wage employer) now claim a fortune equal to the aggregate wealth of the poorest 42 percent of American families.

Figure 13. Iowa in Middle of Pack on Wages But Far Below Average at High Wages

Click above for Figure 13: Iowa in Middle of Pack on Wages But Far Below Average at High Wages

Over a quarter of Iowa workers toil for less than $10.73/hour, the wage needed to lift a full-time worker to the poverty threshold for a family of four [Figure 13]. This places us in the middle of the pack both nationally (24 states have higher low-wage share, 26 have lower) and regionally (five Midwestern peers have higher shares, three have lower). But, at the same time, we have very few workers at the top end of this distribution. Almost three-quarters of Iowa workers (74.8 percent) work for less than 200 percent of the poverty wage (only seven states have a larger share of their workforce in this group). And only three states (Arkansas, South Dakota and Alabama) have a smaller share of their workforces earning more than three times the poverty wage.

The Incredible Shrinking Paycheck

Iowa’s workers have been buffeted by a generation of wage stagnation, a long and continuing shift in sectoral employment that has eroded the base of good jobs, and a recession that both accelerated those trends and added the threat of unemployment or underemployment. At the same time, non-wage forms of compensation — especially job-based health insurance — have also continued to decline. This has had a number of consequences. It has further eroded job quality and family security (since job-based health care often covers other family members). It has undercut total compensation of covered and non-covered workers alike; the former bearing a steeper share of rising premiums, the latter paying health bills out of pocket. And it has created new burdens for public programs (such as hawk-i, Iowa’s state children’s health insurance program) that pick up the slack.

Job-based coverage in Iowa has fallen substantially in recent years, from 76 percent of the workforce in 2000 to 66 percent of the workforce in 2010 — a net loss of over 140,000 covered persons (workers and their families). If you consider the growth in Iowa’s population over this span, the drop-off is even steeper: In 2000, about 600,000 Iowans under the age of 65 were not covered by job-based health insurance; by 2010, this had grown to over 850,000. While Iowa still has one of the higher rates of job-based coverage, its losses between 2000 and 2010 were also among the highest: We are one of 15 states, five in the Midwest (Indiana, Iowa, Illinois, Michigan and Missouri) to lose more than 10 percent of our job-based coverage over the last decade.

Figure 15. Iowans Working Longer to Pay for Health Coverage — Rising Premiums vs. Median Wage

Click above for Figure 14: Iowans Working Longer to Pay for Health Coverage — Rising Premiums vs. Median Wage

These losses reflect two overlapping trends. The first of these is costs. Health spending has slowed in recent years, but still runs well ahead of general inflation. Both premium costs [see Figure 14], and the employee’s share of premiums have risen sharply — especially for family coverage — while wages have stagnated.

Figure 16. Declining Job-Based Insurance in Iowa — 2002, 2012

Click above for Figure 15: Declining Job-Based Insurance in Iowa — 2002, 2012

In 1999, a full-time median-wage worker in Iowa needed to work for about 10 weeks in order to pay an annual family premium; by 2011, this had swollen to nearly 25 weeks. Steep cost increases have pressed employers to drop or cut back coverage, or employees to decline it when offered. High costs may also encourage more employees to elect single coverage — counting on spousal coverage from another source and kids’ coverage through public programs. The second factor here is the shift in sectoral employment outlined above: Job losses are heaviest in sectors that have historically offered group health coverage; and job gains (or projected job gains) are strongest in sectors that don’t offer coverage. This is captured in Figure 15, which traces employment and rates of job-based coverage for key sectors in Iowa. The decline in “covered jobs” between 2000 and 2012 is driven by both net job losses and by declining rates of coverage.

The Eroding Returns on Education

For most of the last century, workers could expect to gain some economic security and mobility by seeking higher levels of education. Indeed, it is still the case that better educated workers enjoy higher wages and lower rates of unemployment. But even this promise is beginning to wane.

Figure 17. Median Wage Varies at Different Education Levels for Iowans

Click above for Figure 16: Median Wage Varies at Different Education Levels for Iowans

As Figure 16 suggests, wages for all educational groups have stagnated over the last decade. Iowans with some college education, or with a bachelor’s degree or higher earn less now than they did in 2000. Even more striking is the growing share of low-wage workers (those earning less than $10/hour in 2011 dollars) whose, higher levels of education have not translated into access to good jobs. In 1980, as Figure 17 shows, most of Iowa’s low-wage workers had either a high school education (43 percent) or less (29 percent). Only 19 percent of low-wage workers had been to college and only 6 percent had finished college. By 2010, high school graduates and those with some college education made up about a third each of the low-wage workforce, while the share that had completed college almost doubled (to 10 percent). So while Iowans are better educated than ever, that investment is no longer a guarantee of real security or economic mobility.

Figure 18. Low-Wage Iowans: Better Educated, But Mobility Cramped

Click above for Figure 17: Low-Wage Iowans: Better Educated, But Mobility Cramped

Just as the economic returns from education are diminishing, its costs are skyrocketing. State funding for the Regents universities (Iowa, Iowa State and UNI) has fallen almost 40 percent in real dollars over the last decade. During this span, tuition has risen by a similar rate and now makes up nearly 60 percent of university revenues (up from under 30 percent in 2000). And, as we have seen, wages over this decade have stagnated or slipped. In 2000, just under 6 1/2 weeks of work at the median wage would pay for a year’s tuition. Today, that is closer to 11 weeks.

NEXT: Engines of Inequality >>>

On low-wage work, see John Schmitt, Low-Wage Lessons (CEPR, January 2012), which places the U.S. experience in an international context; Schmitt and Janelle Jones, Where Have All the Good Jobs Gone? (CEPR, July 2012); Rebecca Thiess, The Future of Work: Trends and Challenges for Low-Wage Workers (EPI, April 2012), which examines the geography and demographics of the low-wage workforce; and Anastasia Christman and Christine Riordan, Filling the Good Jobs Deficit (NELP, October 2011), which seeks solutions.

The loss of job-based coverage has been especially stark for low-wage workers. Good benefits generally come with good jobs, and only about a quarter of workers in the bottom wage quintile (about $10/hr and below) were covered by job-based plans in 2010 — a drop of near 17 percentage points since 1979. Coverage via another family member’s plan also declined over this span, as did the number of low-wage workers buying individual health coverage. The number of low-wage workers on Medicaid has doubled since 1979, leaving 40 percent of low-wage workers without health insurance from any source. See John Schmitt, Health Insurance Coverage for Low-Wage Workers, 1979-2010 and Beyond (CEPR, February 2012).

Iowa has been successful in expanding coverage under hawk-i, the state children’s health program. This public program now covers nearly 40 percent of Iowa kids. Some of this increase reflects more expansive eligibility requirements since 2009, and some of it reflects declining family coverage under job-based plans. Nationally, coverage of children under SCHIP programs has grown by almost 14 percent since 2000, much of this picking up the 12 percent decline in the number of kids covered by job-based plans. For the importance of public programs in doing the same for uninsured adults, see the Iowa Policy Project’s work on state implementation of the Affordable Care Act.

On the costs of higher education in Iowa, see Andrew Cannon, Up and Down: Regents’ Costs Rise, Funding Drops in Iowa (Iowa Fiscal Partnership, March 2012); and Andrew Cannon, Iowa Students: Increasingly on Their Own (Iowa Fiscal Partnership, April 2012).

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