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Working In These Times

Wednesday, Sep 1, 2010, 12:38 pm

Overworked and Underpaid? Productivity Increases, But Wage Growth Declines

BY Akito Yoshikane

As Labor Day approaches, many Americans are breathing a sigh of relief for the extra day off. On a day that celebrates unions and the eight-hour work day, plenty of people are feeling like their hard work isn’t exactly paying off the way it used to.

Even as productivity has continued to climb, wages have been either stagnant or declining. Household income for the average working family has continued to fall, but men, latinos and those without a college education have experienced an especially sharp deceleration of wage growth since the recession, according to a new briefing paper by the Economic Policy Institute.

The Washington, D.C.-based think tank says that from 2002 to 2007, productivity rose 11 percent but the hourly wage for high school and college educated workers fell. In fact, the average median household income (adjusted for inflation) actually earned $2,000 less during that period, going from $60,804 to $58,718. For the first time, family income levels sunk below what they had been at the beginning of the economic cycle.

Typically, an era of higher productivity would also cause wages to rise as workers receive compensation for harder work. Instead, the opposite has been happening. As many companies have reduced staff to cut costs, employees have been squeezed to work longer and produce more.  And with productivity falling slightly for the first time in more than a year, many workers have likely reached their threshold this past Spring.

That's because the labor isn't transferring to the employee paychecks. Nominal wage growth in the private sector was 3.4 percent before the economic crisis, but fell to 1.6 percent by the recession’s third year. Similarly, wage compensation dropped from 3.1 percent to 1.8 and most of the benefits went to the upper class. From 1989 to 2007, the top one percent of households earned 56 percent of the total income growth. The bottom 90 percent received a total of 16 percent.

This isn’t surprising since the trend has actually been ongoing for the last 30 years. The reasons for why wages have continued to stagnate are varied. But could the lack of wage growth be also tied to labor’s declining membership? Workers who belong to unions enjoy better pay and benefits than non-unionized employees. In a Washington Post column by Katrina vanden Heuvel, The Nation magazine editor and publisher, describes how unions were able to raise American living standards:

“But when unions represented over 33 percent of all private workers in the 1940s, they drove wage increases for everyone -- non-union firms had to compete for good workers. Now, unions struggle just to defend their members' wages and benefits. Over the past decade before the Great Recession, productivity soared, profits rose and CEO pay skyrocketed, but most workers lost ground.”

The wage stagnation and its correlation to unionization is not far fetched. Change to Win, a coalition of several union organizations, points out that the peak of real wages was in 1972 when private sector union membership was 28 percent. They write:

Workers are now earning only 83 cents of every dollar they earned more than 35 years ago, while their productivity has increased a dramatic 80%. This is the central explanation for the explosion in corporate profits and the growing income gap in America, and the reason workers in America still believe the economy is moving in the wrong direction.

Still, with less than 13 percent of the workforce belonging to a union, it’s difficult to get the same strength in numbers to raise the standard of living for everyone. The power of collective bargaining has been a central tenet to negotiating a living wage. But the small union numbers, coupled with companies invoking the current economic climate to justify concessions, has eroded the negotiating power of the average worker.

The tight labor market has also been working to the employer’s advantage, making it difficult for workers to negotiate a better wage. For every job opening, there are five unemployed people vying for that spot. In a job market like today where there is a big pool of applicants and a small number of vacancies, companies are able to leverage the pay and benefits on their terms.

Flexible pay scales are also on the rise, where workers have a smaller base salary in exchange for big single payment bonuses. According to Businessweek, more than 90 percent of U.S. corporations now use this plan for non-executive employees. In the early 1990s, it was less than 50 percent.  And to top it off, with rising healthcare costs, companies have also shifted the burden onto workers by reducing their wages.

As a result, many are still feeling financially vulnerable despite having a job. A Gallup poll from August 16 found that 26 percent of Americans were worried about pay reductions. Not as many workers are concerned as last year but the statistic is still high compared to previous surveys. Another polls says consumer confidence is also falling to the lowest levels all year and many are saying the economy is only getting worse.

The growing anxiety is because workers have not been able to benefit from the productivity. Spurring median wage growth is a big policy concern. If households are not able to keep up with the cost of living, the decline in consumer spending could further prolong the economic recovery.
But as EPI suggests, raising the minimum wage or nudging the federal government to create job growth are some short-term solutions.

On Monday, though, workers across America will be enjoying a much-needed holiday before going back to the grind.

Akito Yoshikane is a freelance writer based in Chicago. He can be reached at akitoyoshikane [at] gmail.com

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