The enduring effects of the Great Recession on wage growth in the United States

Abstract

Real wages in the United States have continued to stagnate in the years since the end of the Great Recession. This paper attributes this stagnation directly to the prolonged period of high unemployment. It notes research showing that the only period of sustained wage growth for most of the workforce in the last 3 decades was the period of unusually low unemployment in the late 1990s. Given current economic and political trends, it is unlikely that we will again see a level of unemployment low enough to support broad-based real wage growth in the near future. Workers in the United States have fared notably worse than workers in other wealthy countries over the last 3 decades. Over most of this period, wages for the median worker have barely kept pace with inflation. The only period in which most workers saw a sus- tained period of real wage growth was during the late 1990s boom. As bad as the situation had been prior to the Great Recession, it has sharply deteriorated in the 6 years since the downturn began. There is a real risk that workers could face a decade of widespread unem- ployment and underemployment, with wages at best keeping pace with inflation. Section 2 of this paper outlines the pattern of inequality facing workers in the United States in the decades prior to the onset of the Great Recession. The upward redistribution wasprimarilyfromworkersatthemiddleandbottomtothoseatthetop.Section3discusses the situation since the onset of the Great Recession and the risks of a prolonged period of high unemployment and stagnant wages. Section 4 concludes. 2 WAGES AND INEQUALITY IN THE UNITED STATES In the decades from 1979 to 2007 there was almost no growth in the median wage for US workers. The real wage of the median male worker fell by roughly 5 percent over this per- iod, while the median female real wage rose by roughly 25 percent, as shown in Figure 1. However, since women started from a lower level and grew substantially as a share of the workforce over this period, there was almost no change in the overall median across this 28-year span. This is a sharp departure from the prior 3 decades in which wages rose largely in step with overall productivity growth. There are a number of factors that are widely cited to explain the divergence that began in the1980s.First,unionsbecamemuchweaker,bothasa resultof changesinthe economy and alsoasdeliberate policy.Thesevererecession atthe start ofthe1980s hit manufacturing,with