Despite all the worry about inflation, the good news is that many businesses have increased wages this year to keep a small workforce employed and to compete in a tight labor market. However, wages rose rapidly for the ultra-rich despite the pandemic in 2020. Economists believe that gains made by workers in 2021 will not be sustainable unless structural changes take place.
The United States has seen a slowdown in wage growth since April, when it reached an all-time high. This was after employers tried to entice workers to return to their offices, cash registers, and restaurants following the lifting of pandemic lockdowns. Reports suggest that employers plan on spending slightly more on wages and benefits next year — but not as much as you might expect after record numbers of workers left their jobs in search of better prospects in 2021.
History shows that increases in average wages tend to favor the wealthy. An analysisOf new federal dataAccording to the Economic Policy Institute, wages for the top 1% of earners grew faster than those for the bottom 90% in 2020. This is a trend that has been going on for four decades.
While average wages rose slightly in most wage brackets, economists believe this is partly due to job losses during lockdowns. In 2020, the earnings of the wealthy grew at a faster rate than other income groups.
BillionairesMulti-millionaires Their wealth exploded over the past two years — even as the economy slowed and millions of people filed for unemployment. The lowest share of wages since 1937, when data collection began, was only 60% for the bottom 90 per cent of workers..
The top 1 percent received 13.8 percent of all wages for 2020, almost double the amount that top earners received back in 1979. EPI reports that while the average wage for the wealthy has not increased every year since 1979 (and it has not been increasing in the last ten years), the redistribution upward of wages (from the bottom 90 percent towards the wealthy) has remained fairly constant. The annual average wage for the bottom 90% was nearly $39,000 in 2019The top 5 percent earned an average of $320,000,
The top 1 percent saw their average pay increase by almost 10 percent in 2020. Wages for the top 0.1% increased by as much as 7.3 percent. According to Lawrence Mishel, EPI economist, wages for everyone else increased by only 1.7 percent. However, that is not the complete story.
“The bottom 90 percent appears to have done somewhat better [in 2020], but that’s partially because we are missing a whole group of people at the bottom,” Mishel said in an interview.
During the lockdowns of 2020, there were large job losses in retail and food service industries. However, high-paid workers in finance continued to work remotely. Mishel stated that many of the lowest-paid workers in retail and food service lost their jobs, or were laid off. This artificially increased the data on the average wages of the bottom 90 percent of earners.
Inflation also grew by a sluggish 1.2 percent in 2020, which pushed up the average “real wage,” or wages adjusted for inflation to reflect the actual purchasing power of a paycheck. The average real income for the top one percent has increased by 179 per cent since 1979. But, the real income for the top 0.1% has risen by 389 per cent. The share of total wages paid out to the wealthy increased by 28 percent, while the bottom 90 percent saw a 28 per cent increase.
Mishel stated that there are many deliberate public policies that have pushed people with lower incomes to produce more for less payAs executive salaries soared in recent years. Wage theft, the decline of unions, globalization fueled by corporate greed, the erosion of overtime and other protections for workers, and a federal minimum wage frozen at $7.25 per hour have all enabled business owners and those who hold the purse strings of capital to chip away at workers’ bargaining power.
From 1979 to 2017, the U.S. workforce saw a decline in wage growth of 90 percent compared to the rest. accordingThis paper was co-authored by Mishel earlier this year. Mishel and his colleagues say this is the result of wage “suppression” rather than “stagnation.”
“I suspect that workers are doing better in 2021 than in 2020 and will do better next year, and the reason that people are pushing back is that their wages have been suppressed for 40 years, and they are seeing an opportunity,” Mishel said. “The question is, will this continue?”
Mishel is skeptical of the “great resignation,” the much-debated term that popped into the media this year after millions of workers left their jobs thanks in partTo a labor shortage, and a booming economic. Instead of “quitting,” Mishel said, workers are “switching” to higher-paying jobs as employers improve wages and work conditions to attract workers and keep businesses staffed. Rapid job growth is also fueling demand for labor.
“We are in a situation where workers individually are leveraging some newly found power, and they’re doing that because there is a huge increase in job openings fueled by policies which provided stimulus,” Mishel said, pointing to President Joe Biden’s American Rescue Plan that provided a round of pandemic checks and enhanced unemployment benefits earlier this year.
Conservatives are blaming Biden for inflation, but supporters of Democratic efforts to stimulate economic growth say that supply chain constraints are a major reason for rising fuel prices and other goods. The pandemic is not over — in fact, COVID is rising once again — and consumers are still choosing to spend money on goods over face-to-face services, which puts additional pressure on the supply chain.
Although the job market is not at its pre-pandemic peak yet, the unemployment rate of 4.2 per cent is lower than many economists anticipated.
“This is quite unusual to have such low unemployment” after an economic downturn, Mishel said. “But this is not a magical moment; this was driven by policy.”
The federal stimulus did increase consumer buying power and demand for goods and services, and that’s one reason why the Biden administration boasts about creating 5 million jobs during its first eight months. Yet fact-checkersIt is important to remember that not all administrations are responsible for creating new jobs. Biden was in office when the economy was improving. Technology, demographics, and fuel prices all contribute to mass job growth. Higher wages are more attractive to people who want to work.
In the meantime, real wages are not keeping upInflation is a problem for families with lower incomes who spend most of their income on necessities. Some workers still have some room to make a living, with a little help from stimulus and the demand for labor.
Whether renewed demand for labor will put a dent in wage inequality — after decades of “wage suppression” that tilted earnings toward the wealthy — will depend on structural changes such as an increase in union membership that allows for more collective bargaining and better protections for workers in low-wage industries, according to Mishel.
Structural change is not impossible; picket lines are popping up across the country, and Biden’s Build Back Better plan that Democrats are rushing to pass in Congress would invest in creating union jobs at fair wages. Opponents worry that more government spending will lead to higher inflation. But supporters are not so worried. Democrats argue that Build Back Better is funded through taxes and not government debt. This means spending would be spread over many years, rather than hitting the entire economy at once like stimulus checks.
“I would expect that wages start growing faster in 2022 but prices will grow more slowly than they have been, so I think real wages will bounce back,” Mishel said.