The first time I saw a version of the graph below, depicting how worker compensation suddenly diverged from national wealth, I was horrified. My statistical training caused me to see right away that something took place in the mid-1970's to stifle the rise of worker compensation. And the gap between wages and wealth keeps growing every years. I have written several articles about it since, but the implications have still not penetrated our public awareness.
The most recent appearance of this graph was from a report by the Economic Policy Institute confirming some earlier findings of the huge disconnect between worker productivity and worker compensation. I wrote an article summarizing their findings and received a lengthy comment that read, in part:
"Although I agree that the average wage is trending lower than productivity growth, I do not attribute it all to the greed at the top... The question I have is that how much of the deviation from the past are due to changes in society, where the average person has less room to negotiate a better price?"
The commentator went on to suggest the following reasons to explain the growing wage-to-wealth gap:
1. The trend of the two paycheck family led to a weakness in the labor force's ability or need to demand higher compensation.
2. Expanded social service programs and income eligibility caps for aid to the working poor created incentives for workers to keep their compensation low so they qualify for government assistance.
Let's begin with the last point; fixed healthcare benefits. If these were anti-competitive purchases by employers, the rise in employer costs for these programs would correspondingly raise, not lower, hourly worker benefits. The more an employer pays for employee health insurance, the higher the wage compensation is per worker.
Healthcare costs have risen faster than inflation. The reasons for this are many, but the topic is too broad to address here except to say that higher insurance costs led many employers to drop healthcare coverage for their employees. This is a factor contributing to the lower growth in wage compensation. Note, however, that the flood of individuals entering the private health insurance market corresponds with the period of high rising premiums, not lower rates. The collective bargaining leverage of large corporations for competitive health insurance bids was a constraining factor on policy costs.
1. The trend of the two paycheck family led to a weakness in the labor force's ability or need to demand higher compensation.
To the main point, the impact of two paycheck families on wage compensation: Is there evidence that the gradual transition to two paycheck families contributed to lower hourly wage compensation? I believe the graph above provides the answer.
First, the wage/wealth graph above represents actual, verifiable economic data collected over a span of seven decades. It is not a trend graph, but you can easily imagine superimposed trend lines on it. The first would be a linear line rising steadily upward and to the right representing hourly Gross National Product (GDP). This is a measure of our nations' wealth and it has been steadily growing.
The second trend line, representing hourly wage compensation, would rise perfectly in step with GDP from 1947 to 1973 (which is also the period of rapid expansion of the American middle class). Then it bends sharply (if somewhat erratically) over a seven year period before settling back into to a straight, but much shallower trend line.
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