Even if the economy is on a roll, many Americans aren’t feeling the benefit.
Real wages effectively declined in 2018, according to figures from the PayScale Index, a formula from the Seattle-based salary comparison site. PayScale said the median increases, when adjusted for inflation, were only 1.1% in the last quarter and 1% over the past year. In fact, when adjusted for cost of living increases, real wages declined 1.3% in 2018, PayScale found.
That runs counter to the latest Bureau of Labor Statistics data, which showed an annual increase of 3.2% in average hourly earnings in December, but that’s before accounting for inflation. The PayScale data also stand in contrast to otherwise encouraging news about the labor market. The U.S. unemployment rate remained near a 49-year low of 3.9% in December.
‘This is a turbulent period for the U.S. economy which means uncertain wage growth across many jobs and industries as well as a continual decline in real wages for most workers.’
PayScale looks at median, not average, “so outlier growth doesn’t bias the results,” though it does not dispute the results of the Bureau of Labor Statistics. “A decline in real wages means the average person can purchase even less today than they could last year when wages are measured against inflation,” said Katie Bardaro, chief economist at PayScale.
“There is no question this is a turbulent period for the U.S. economy which means uncertain wage growth across many jobs and industries as well as a continual decline in real wages for most workers,” she added.
There are other issues at play, too. Many components of the economy have major effects on people’s purchasing power, but they aren’t easily captured in official inflation data, said Mark Hamrick, senior economic analyst at Bankrate.com. That includes the high costs of college and university attendance and health care as well as housing costs.
Average monthly rents have risen 28% over the last 10 years, according to a November 2018 report from real-estate website RentCafe and data-analytics firm Yardi Matrix. At the same time, the average size of a newly-built rental apartment has shrunk by 52 square feet, or 5%, to 941 square feet. Health-care costs have also soared: Employer-sponsored insurance premiums increased from an average of $6,000 in 1999 to more than $18,000 in 2016, according to an October 2018 report by the Economic Policy Institute, a progressive Washington-based economic think tank.
‘Inflation broadly can be viewed as low, but outsized impacts from education and health care expenses can be quite damaging.’
“Inflation broadly can be viewed as low, but outsized impacts from education and health care expenses can be quite damaging,” Hamrick said.
Wage growth was higher in some areas than others, the PayScale Index showed. San Francisco again experienced the largest increase in wages with a 4.9% increase since last year and wages grew 3.3% in San Jose and 3.0% in San Diego. As of Jan. 1, some 5.3 million hourly workers in the U.S. received raises as a result of minimum wage increase ballot measures passed in Missouri, Arkansas, California, Massachusetts, Arizona, Colorado, Washington, and Maine
However, more than 60% of Americans said they did not get a pay raise in the last year, a December survey from personal-finance site Bankrate found, despite other data that’s shown modest wage growth over the past year, helped by a shrinking pool of labor, more competition among companies to hire workers and retiring baby boomers.
Executive pay is an entirely different story
As millions of Americans struggle to make ends meet, compensation for executives has surged. Pay ratios of Fortune 500 company CEOs to their employees range from 2 to 1 to nearly 5,000 to 1, according to a 2018 reportby the staff of Keith Ellison when he was the Democratic congressman for Minnesota; Ellison is now the Attorney General-elect of Minnesota. The average CEO/worker ratio is 339 to 1, it added.
Median-salaried employees in all but six companies would need to work for 45 years to earn what their CEO makes in one year.
U.S. publicly-listed companies have begun releasing how much their CEOs make compared to the rest of their staff as required under a 2015 rule in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. At 188 of the 225 companies analyzed by the researchers a single CEO’s pay could be used to pay more than 100 workers. Median-salaried employees in all but six companies would need to work for 45 years to earn what their CEO makes in one year.
Income inequality has soared in the U.S. over the last five decades, despite increases in worker productivity, the report said. “Incomes for most Americans have been stagnant for four decades,” the researchers wrote. “Instead, this increase in income inequality was almost entirely driven by soaring compensation levels for the top 1% of income earners.”
U.S. publicly-listed companies have begun releasing how much their CEOs make compared to the rest of their staff as required under a 2015 rule in the Dodd-Frank Wall Street
As the PayScale data suggests, the gap between the rich and everyone else continues to grow, compounding a polarized political climate, experts say.
Reform and Consumer Protection Act of 2010. As congressman, Ellison requested that his staff examine the ratios of the first 225 Fortune 500 companies to publicly disclose their CEO pay. These companies collectively employ more than 14 million workers and generated at least $6.3 trillion in revenue.
As the latest data by PayScale suggests, the gap between the rich and everyone else continues to grow, compounding an already polarized political climate, Hamrick said. “This has produced many of the political, economic and societal strains that we see playing out on a nearly daily basis,” he added. “This is the impact of a widening chasm among classes which are able to enjoy luxury experiences and those who are struggling just to get by, or aren’t getting by.”