Sep 27, 2017 - Economy & Business

Is the American paycheck great again?

Illustration: Rebecca Zisser / Axios

A spate of recent reports is challenging an article of faith — that the modern economy is sticking it to the little guy, offering up no wage increases for years. The research documents back-to-back income increases in 2015 and 2016, and suggests that the main problem now is not stagnant wages, but a shortage of labor.

But don't get too excited: Economic data actually conflict. And there is a major fact many are leaving out: even though earnings have turned upward since 2015, they are still barely higher, adjusted for inflation, than two decades ago.

Who is saying the American worker has turned a corner: According to the Census Department, household income has now grown in every income bracket for two straight years. "The change we've seen in household income has been monumental compared with the fifteen years before that," says Janelle Jones of the Economic Policy Institute.

But there is noise: Jay Shambaugh, Director of the Brookings Institution's Hamilton Project, tells Axios that while the Census numbers are a good sign, they don't necessarily indicate that employers are raising pay. "Household income is going to include changes in how much you're working. Even if wages are growing just modestly, you now have people working who were unemployed, or have moved from part- to full-time jobs," he says.

So what we have is good news for the economy, but not necessarily a higher paycheck for the average worker.

Look at this report: In a new study, the Hamilton Project argues that to really understand U.S. wage dynamics, you have to examine long time horizons. When Hamilton researchers looked in particular at lower wage categories, they found that employers had not raised wages much at all for more than 40 years. "After adjusting for inflation, wages are only 10 percent higher in 2017 than they were in 1973, with annual real wage growth just below 0.2 percent," the report reads.

Yet look at these other factors, too:

  • Because of how the Labor Department compiles statistics, these figures do not include pay for supervisors, government employees, or the self-employed. Nor do they take account of increases in non-cash compensation.
  • Neither do they reflect the experience of a typical worker over the course of her or his lifetime. While the median pay for a group of workers can be stagnant, individual workers can see drastic changes in income from year to year. A 2015 study by sociologists Thomas Hirschl and Mark Rank found that from 1968 to 2011, 70% of workers spent at least one year in the top 20% of earners by the age of 60, while 54% spent at least one year in poverty as well.

A failure of the American dream: Shambaugh says the numbers suggest that the U.S. economy continues to fail to deliver for the average worker. "If we think about the broadest sense of the American dream, we think about the next generation being better off than this one," Shambaugh says. "But a 20-year old with a high school education is no better off today than the same person would have been 40 years ago."

Light at the end of the tunnel: Despite such gloomy analyses, inflation-adjusted pay has actually been rising faster during this recovery than the previous three. This is because of a recent spate of minimum wage increases in states and localities across the country, today's historically low unemployment rate, and very tame inflation since the financial crisis.

  • On Tuesday, Target became the latest large employer to commit to internal wage floors well above the federal hourly minimum of $7.25, pledging to pay all its workers $15 per hour by 2020. Target's motivations are a complex mix of marketing savvy, a need to hire and retain good workers, and the assumption that tight labor markets will lead to higher wages sooner or later regardless.


  • The en vogue solution to wage stagnation in Democratic circles, as articulated by former Obama CEA Chair Jason Furman at a Hamilton Project event Wednesday, is stronger worker bargaining power, whether through antitrust regulation, stricter regulation of employer behavior, or policies that bolster unions.
  • Republican leaders like Paul Ryan promote corporate tax cuts, pointing to studies showing that lower corporate taxes increase worker pay.
Go deeper