Graph of the Day: US Wage Growth Falls Behind
By Benjamin Landy
Thanks to the Occupy protests, income inequality is finally getting some long-overdue attention in the media. Still, there’s a fair amount of navel-gazing in America, and those conversations rarely move beyond our own borders to contemplate how the struggles of our middle class measure up with the rest of the post-industrial world. Since the early 1970s, most US households have seen little income growth, with wages down 14 percent as a share of the economy overall and wage inequality up 40 percent. But is our growing income gap the exception or the rule?
According to a new study, it’s a little of both. The Resolution Foundation, a British think tank, found that “the phenomenon of growth without gain in advanced economies is a universal one,” with median wages growing less quickly than economic output over the last ten years in each of the ten rich countries studied. But there were still significant variations in the relationships between workers’ wages and GDP among the nations, allowing the study’s authors to differentiate three distinct groups:
The US, Australia and Canada were categorized as having consistently weak wages relative to GDP; France, the UK and Germany did slightly better but likewise experienced an acute deterioration in the relationship between growth and pay; and Japan, Finland, Sweden and Denmark were cited for a stronger relationship between wages and GDP over the last decade, though they too faced a “recent and mild” decrease in wage equality.
In the chart above, a higher ratio corresponds to faster wage growth relative to GDP. The United States, while clearly not the worst among its peers (that unfortunate honor must go to Canada, which experienced exactly zero wage growth between 2000 and 2007), was still clearly on the lower end of the spectrum.
But crises always double as moments of opportunity. The study concludes that the varying experiences of the three groups suggest that there remains considerable opportunity to reverse the trend of increasing wage inequality. Policies like indexing the minimum wage to consumer price indexes, for instance, have allowed France to maintain wage growth, although at the expense of higher unemployment. The industrial policies of Germany and the Nordic countries may likewise provide policymakers with strategies to reconnect wage growth to productivity gains.
