Wages — 2013 Report

All of this — recessionary unemployment, persistently high rates of underemployment, and weak job growth in the recovery (both in job numbers and quality) — have contributed to wage weakness across the economy. Indeed, recent research from the National Employment Law Project and others has suggested not only that job growth is concentrated in low-wage occupations, but that wages in those occupations are slipping.

Wage weakness, in Iowa and nationally, begins with the declining share of national income going to wages and salaries. For the last generation (and accelerating in recent years) capital income (interest, rent, dividends, and capital gains) has claimed a greater share of national income, while the share claimed by labor (wages and salaries, work-based benefits) has slipped. Labor’s share of national income hovered around 65 percent for most of the postwar era and then — beginning in the early 1980s — began to fall off. This is not just a categorical shift; labor income is distributed across American households but capital income is highly concentrated. As the latter gains share, it feeds inequality. In turn, the declining labor share tracks all wages and salaries — including those claimed by overpaid CEOs — so leaves uncounted the widening inequality gap in the distribution of wages and salaries. Not only is the overall labor share shrinking, but more and more of that share is going to top earners.

Figure 7. Labor’s Falling Share of National Income

130830-SWI2013-Fig7Source: Bureau of Labor Statisitics, Major Sector Productivity Series

The key point here is not just that wages have stagnated, but they have done so over an era in which the productivity and educational attainment of American workers have improved dramatically. The last generation has been marked by a stark disconnect between productivity growth (up over 80 percent between 1973 and 2012) and slow or stunted wage growth. In Iowa (see figure below), the economy has grown about 67 percent since 1979 (we use state income here as a proxy for economic growth), but wage earners — even at the top of the wage distribution — have seen little of this growth. Wages at the 90th percentile, over the same span, have grown about 16 percent; wages at the median have grown only a little more than 3 percent; wages at the 10th percentile have fallen about 3 percent.

Figure 8. The Widening Productivity-Compensation Gap in Iowa

130830-SWI2013-Fig8Source: EPI/IPP analysis of CPS (for wages); Bureau of Economic Analysis (for state income)

These wage trends, for Iowa and the nation, are summarized in Figure 9 below. The real (inflation-adjusted) hourly wages of the median U.S. worker grew only 5 percent from 1979 to 2012. For Iowa workers at the median, the net gain (3.4 percent) was even more modest. Through the 1980s, losses in Iowa outran those of the nation — indeed even the state’s highest wage percentiles showed net losses over this decade. The economic boom of 1995–2000, by contrast, brought a brief respite of across-the-board wage growth, and gains in Iowa ran ahead of those at the nation as a whole. But most of this was lost, in Iowa and in the rest of the country, during the recessions that began in 2001 and 2007.

Figure 9. INTERACTIVE Doing Better at the Top: Three Decades of Wage Trends in Iowa, 1979-2012


Source: Economic Policy Institute and Iowa Policy Project analysis of CPS data, inflation-adjusted using CPI-U-RS.

For men, the pattern (essentially similar for Iowa and the nation) is particularly stark. Real wages began falling for low-wage men in the mid-1970s, and this spread across all but the highest percentiles through 1979–1989 and through the first half of the 1990s. The late 1990s brought some relief, but this was short-lived: Wage growth slowed in 2000–2007 and then lost ground — for all but highest earners — from 2007–2011. The wage numbers alone (which include only men who are working) undercount the real damage. In 1970, 94 percent of men aged 25-64 worked. Today — reflecting chronic unemployment and higher rates of incarceration — that share is closer to 80 percent. The real earnings of all working-age men, whether they have a job or not, have dropped almost 20 percent since 1970.

Figure 10. INTERACTIVE Wage Trends — U.S. and Iowa, 1979-2012

Basic RGBSince 1979, the median female wage in Iowa has grown more than $2.00 (from just under $12.00/hr to just over $14.00/hr) and the gap between men and women has narrowed. In 1979, the median female wage in Iowa was 62.5 percent of the median male wage; today it is about 80 percent. Some of this represents real gains made by women, both breaking down occupational barriers and closing in on equal pay within occupations. But these gains are also exaggerated by the weakness of male wages. Indeed, the closing of the wage gap from 1979-1999 was almost all the result of falling male wages.

Figure 11 illustrates the point, showing both the median male and female wage — and also a look at the female wage as a percentage of male wage both in actual terms and with no change in male wages. The beige bars show the median female wage each year as a percentage of the median men’s wage, with the right-side scale showing it has been around 80-85 percent in all but two of the last 11 years. The blue bars paint a different picture. The men’s median wage was $18.95 in 1979; had it stayed at that level, rather than dropping as it has, the women’s median would not have reached as high as a percentage of men’s pay. If male wages had remained constant at their 1979 value, the median wage of Iowa women in 2012 would be less than 75 percent the median male wage.

Figure 11. Closing Pay Gap Between Men and Women Largely Due to Declining Male Wages

The Gender Wage Gap in Iowa, 1979-2012

Basic RGBSource: Economic Policy Institute analysis of Current Population Survey data

Wages and wage gaps are also shaped by education. The median wage for those with less than a high school education has fallen by almost 20 percent in the last 30 years. The median wage for those with just a high school diploma has fallen slightly. And the median wage for those with a university education has risen about 20 percent. In 1979, to put it another way, the median wage for a worker with a University education was about $8.00 higher than the median wage for a worker who had not graduated high school; today that gap is closer to $15.00/hour. At the same time, the educational payoff has slowed in recent years, (see graph below), the gap widened from 1979 to 2000, but since then median wages have not grown for any educational cohort.

Figure 12: Wages by Education in Iowa, 1979-2012

130830-SWI2013-Fig12Source: Economic Policy Institute analysis of Current Population Survey data

The tragedy here is that workers are better educated than they were a generation ago, but many are not seeing the benefits. In 1980, 40 percent of low-wage workers (those earning less than $10.00/hr) had not completed high school and just over 25 percent had completed some college (see Figure 13). By 2010, these numbers had nearly reversed: Fewer than 20 percent of low-wage workers came from the “less-than-high-school” cohort; and more than 43 percent had some college under their belts. In other words, while low-wage workers have become a smaller share of the work force than they were 30 years ago, almost half of them have had at least some college education — about twice as great a share as 30 years earlier. Given the dramatic increase in educational costs over this same span, these trends underscore the uneven and uncertain returns from an investment in a college education.

Figure 13: INTERACTIVE Smarter but Poorer: Low-Wage Work and Education by State, 1980 and 2010

Low-Wage Workers by State, 1980 and 2010

Iowa’s wage profile reflects national and regional patterns. The rural states of the upper Midwest were not hit as hard during the last recession — and those riding commodity or energy booms (such as North Dakota) actually did quite well across the last business cycle. Indeed, as the graphic below suggests, wage gains or losses at the state level are shaped pretty decisively by state-level economic conditions: those hit hard by the recent recession suffered deep losses; those hit lightly by the downturn saw shallower losses and scattered gains. Consistent with this pattern, relatively low rates of unemployment in Iowa across the last six years yielded wage growth, though it was negligible (slight gains at some deciles, slight losses at others). These recessionary patterns (shown here for 2006-2012) stand in stark contrast to the more equitable gains — strongest at the low wage deciles, weakest at the top — during the boom of the late 1990s (1996-2002).

Figure 14. INTERACTIVE Wages and Unemployment in the States, 1996-2002 and 2006-2012

130830-SWI2013-Fig14Measured against its Midwestern peers, Iowa’s wage structure is more compressed — and weaker at the higher deciles. At the 10th, 20th, and 30th wage deciles (see Table 1 and Figure 15 map below), Iowa ranks among the top five states in the region, joining its more metropolitan and industrialized peers and Illinois and Minnesota, and two rural peers (Nebraska and North Dakota) enjoying energy booms. But, at the median and higher, we sink into the lower tier of states in the region. And at the 80th and 90th percentile, workers in only one state (South Dakota) in the 12-state region earn less.

The pattern, then, is pretty clear: Working families have lost a lot of ground across the last 40 years — a pattern interrupted only by the sustained growth and low unemployment of the late 1990s. As each year passed, a smaller and smaller share of national income went to wages and salaries, and the distribution of those wages and salaries grew more and more unequal. These years saw slow growth for all but the highest earners, despite steady gains in aggregate income and productivity, and steady gains in the educational attainment of workers. The last business cycle did not hit Iowa as hard as it hit the rest of the country, but our wages (especially in the upper deciles) were already low.

Table 1. How Iowa Stacks Up in Midwest Across Wage Levels, 2012 — In Bottom Half Above Median Wage

Basic RGB

Figure 15. INTERACTIVE How Iowa Fares at Median Wage Across the Midwest, 2012

Wages in the Midwest, 2012

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