Thursday, October 23, 2014

Compensation shrinks for all income groups – except the very highest

October 23, 2014
by David Cay Johnston

American paychecks shrank last year, just-released data show, further eroding the public’s purchasing power, which is so vital to economic growth.

Average pay for 2013 was $43,041 — down $79 from the previous year when measured in 2013 dollars. Worse, average pay fell $508 below the 2007 level, my analysis of the new Social Security Administration data shows.

Flat or declining average pay is a major reason so many Americans feel that the Great Recession never ended for them. A severe job shortage compounds that misery not just for workers but also for businesses trying to profit from selling goods and services.

Average pay declined in 59 of the 60 levels of worker pay the government reports each October. The Social Security Administration slices wages into tight categories, starting at $1 to $5,000 and topping out at $50 million plus.

Which group of lucky duckies didn’t see their pay fall? Workers making more than $50 million, who saw their average pay rise by $12.8 million, to $111.7 million.


One encouraging sign in the new data was the increased number of people with work. Last year nearly 155.8 million Americans had at least some paid work, up 2.1 million from 2012.

The number of added workers almost equaled the 2.4 million increase in population, a significant improvement from the trend line since 2000. From 2000 through 2013, the number of people with work increased by 5.7 percent, less than half the 12 percent increase in population. The increased competition for jobs puts downward pressure on wages and discourages many people from even looking for employment.

A good way to grasp the loss of American purchasing power is to compare earnings from jobs to population and the size of the economy. My analysis shows that the slice of the economic pie going to worker pay is thinning while the slice for profits is fattening.

In 2013 the average wage per capita was $21,209, down $379 from 2000. That 1.8 percent decline means that in 2012, Americans earned about 51 weeks of pay for 52 weeks of labor at 2000 pay rates.


The overall decline in purchasing power per American is a major factor in the recent drop-off in corporate profits, which had been soaring since the recession officially ended on June 30, 2009. At Walmart, McDonald’s and other companies that sell to workers in the bottom half or even the bottom 90 percent, corporate financial reports show eroding conditions, with profits falling and debt rising. This is the inevitable and unavoidable result of pay and jobs not growing in tandem with the economy, especially the increases in productivity that in the postwar era used to be shared by investors and workers.

Better pay and more jobs would help remedy this, but congressional gridlock is holding back economic reforms as a minority of lawmakers blocks government investments that fuel economic growth — especially investments in basic research, education and infrastructure.

The decline of unions is also tamping down worker pay. While the United States’ major economic competitors Europe, Japan and Canada are heavily unionized, only about 1 in 15 American private sector workers is a member of a union.

Employers are in such a powerful position at this point that it may be misleading to speak of a job market in the traditional sense of an open, competitive marketplace for labor. Instead we have created a one-sided market with take-it-or-leave-it pay for the vast majority of workers who lack unique talents.

Over time, holding down wages and benefits becomes a vicious cycle. Less buying power for consumers puts pressure on companies to cut pay, weakening corporate balance sheets and ultimately producing smaller profits. The path to prosperity is paved with better wages and more jobs that make greater purchasing power and more profits possible.


We can do better than this. We can elect leaders who favor broad prosperity through time-tested principles that encourage investment in economically productive activities rather than in financial speculation and unproductive assets such as mansions and yachts, that favor domestic jobs rather than offshoring, that restore bargaining power to workers and that recommend major new public investments that will make the economy more efficient and expand the knowledge base from which wealth creation springs.

America will remain in the economic doldrums until our political leaders recognize these trends and use their power to change them or until we fire them at the ballot box.

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