The Real Reason Wages Haven’t Risen
Hint: “Where the gold at? I want the gold.”
The question of why wages have been stagnating over the past forty years has been lingering in my mind for quite a while now. I did some research, but many of the answers I found just didn’t solve the question.
One of the best articles I’ve found trying to tackle this subject is from the Economic Policy Institute. It claims that there are quite a few reasons that wages have stagnated over the past 35 years. They are:
- Monetary/fiscal policy—interest rates haven’t been kept low for long enough (which would force wages to rise), and government spending has been too low
- Union membership has decreased
- Labor market policies and practices — things such as: a minimum wage that hasn’t risen enough, undocumented workers, and slack labor standards
- CEO compensation — because executive pay has been tied to stock prices, profits are emphasized and sought after instead of increasing employee wages
- Globalization — because of trade agreements, we can get products here that were made overseas with cheap labor, instead of our higher-priced labor
If I move beyond the liberal ideology that seems to be pervasive in the article, these reasons seem pretty good. I thought they might be the “final answer”, or a large portion of it, until the question of “why?” kept lingering in my mind. Are these reasons, together, the main reasons that wages have stagnated? I don’t think so anymore.
Here’s a chart of real wage growth (real means inflation-adjusted) from the Economic Policy Institute. Note that the wages are for private sector, non-supervisory workers.
I agree with the chart: the start of the plateau in wages, which we haven’t moved out of, started in about 1973.
There is little doubt that CEOs are taking a larger cut of profits, but when a firm has thousands of employees this should only have a very small effect on the ability to pay rank and file employees increasing wages. Here’s another chart from the Economic Policy Institute:
Notice how pay for CEO’s doesn’t start to rise significantly until about 1989. I don’t think we can say that a trend that started in 1989 caused another trend that started in 1973. Perhaps it added pressure to the 1973 trend, but what caused the trend?
Mother Jones has a chart that shows productivity and income from 1979 to 2009:
In the article the author says, “If the median household income had kept pace with the economy since 1970, it would now be nearly $92,000, not $50,000.” What happened in the 1970 to 1973 period to cause the great decoupling of wages and productivity, where wages no longer rise in lock-step with productivity?
Let’s look at the Economic Policy Institute wage/productivity chart again:
On the website the chart is interactive. I believe 1971 is actually the key year for this analysis: I’ll get to why in just a bit. Here are the stats from the interactive chart for 1971 and 2015… the percentages shown are the growth in that value from 1948 until 1971 or 2015:
1971: Hourly compensation — 82%
2015: Hourly compensation — 112.5%
1971: Net productivity — 87.1%
2015: Net productivity — 241.1%
From 1948 to 1971, compensation and productivity grew at almost the same amount. From the chart we can see that they closely followed each other over those years.
From 1971 to 2015, compensation stayed virtually the same and productivity grew a lot.
The $3.73 an hour that earners made toward the end of 1971 would be worth $21.47 an hour in December 2015 dollars, according to the BLS inflation calculator. That $21.47 was an increase of 82% compared to 1948 wages. That means in 1948, these wage earners were making about $11.80 in 2015 dollars (I had to break out some old school algebra for that one).
There was a nice increase over those 23 years. According to the chart, wages grew a little more from 1971 to 2015, even though other data doesn’t even confirm that small amount of growth. Let’s ignore that issue for now (I’ll show real wages in 1971 compared to 2015 in a little bit). Where would wages be in 2015 if wages kept up with productivity, as they essentially had from 1948 to 1971? Let’s be conservative and look at where wages should if they had kept up with just 80% of the growth that productivity had from 1971 to 2015.
From 1971 to 2015 productivity grew 82.3%. If wages grew to 80% of that amount, they should have grown 65.8%. That means that in 2015 (in 2015 dollars) American production and non-supervisory wage earners should be earning $35.60 an hour. What if the median household income had gone up a similar amount? It’s not an exact parallel, but let’s check for comparison purposes.
Median household income was $9,027 in March of 1971. In March 2015 dollars that would be $53,286.16. Let’s grow that number by 65.8%, to keep wage growth in the ballpark (bringing it to 80% of productivity growth, to be exact) of productivity growth: that would mean that in 2015, median household income should stand at $88,348.45. I think most households in America would appreciate that kind of pay. In 2015, median household income was $56,516.00.
I went through these stats because I wanted you to see the magnitude of the effect that the decoupling of wages from productivity has had on us. If wages kept up perfectly with productivity from 1971 to 2015, our median household income would be $97,140.67. Wouldn’t that be nice?
Wages were $21.47 an hour in 1971 (in 2015 dollars) and were $21.26 an hour in 2015. A decrease! By my own calculation that’s a decrease of nearly 1% in real wages, and shows that in 44 years there has been absolutely no growth in wages at all! This should challenge our assumptions that the Federal Government should be striving for economic growth, because it seems that any growth in 44 years hasn’t positively affected anyone classified as a production or non-supervisory wage earner, if define a positive effect as a long-term increase in wages.
So why does government strive for growth? It goes back to a few things, perhaps the biggest being that the billionaires and mega-corporations can acquire more capital when there’s growth, and the billionaires, elites, and corporations pull virtually every string in Washington.
So I suppose the elites are sucking the common man dry by somehow extracting a ton of productivity, profits, and growth out of this nation. But they’ve been doing that for over a hundred years. What mechanism has allowed them to do this since 1971? The United States completely left the gold standard in 1971.
Let’s look at the Economic Policy Institute wage/productivity chart just one more time:
It seems so obvious to me now. August 15, 1971 is the day “President Nixon announced that the U.S. dollar would no longer be convertible into gold in the international markets.” It’s effectively the day the United States left the gold standard. Ever since then the incomes of wage earners, the people who do most of the physical work in this country, was left in the dust. The banks, through the unconstitutional (and therefore, illegal), privately-owned Federal Reserve can increase the money supply at will, and pay us all “more money”, in nominal terms, every year. And the wage earners have nothing to show for those increases, because they’re fake, and flittered away through inflation and monetary manipulation.
I don’t totally want to knock on billionaires and the elites. We’re all to blame for allowing this to happen. We’re all to blame for allowing our currency and interest rates to be manipulated by the unconstitutional Federal Reserve, and to allow ourselves to get so far away from the supreme law that we agreed to follow: our Constitution of the United States. If I was a billionaire with tons of influence in Washington, perhaps I would be tempted to bend the rules in my favor. But I hope not. It goes against the Constitution, and because it is unfair to extort others, it is immoral.
Does it annoy me that a typical American making twenty-two bucks an hour should actually be making about thirty-five or more bucks an hour? Of course it does. And it may all be because we went off of the gold standard in 1971, so that the government, bankers, and the elites could distort markets even more. All that at the expense of the masses and the benefit of very few, very wealthy Americans.
When we look at the 5 reasons given by the Economic Policy Institute for wage stagnation, it seems more clear now that these factors couldn’t have created the drastic change that started around 1971–73, as I’ll explain in the list below:
1 Monetary/fiscal policy — The Federal Reserve has been manipulating the Federal funds rate since at least 1954. That didn’t change in the 1971–73 period, so I don’t think it caused the decoupling of wages from productivity.
2 Union membership has decreased — According to the chart below, membership has been decreasing since around 1956. There was no special change in the 1971–73 time frame. Even if there is an effect on wages, it’s only affecting about 24% of employed workers by 1971, according to the chart:
3 Labor market policies and practices —The Federal minimum wage peaked in real dollars around 1968, and then declined, so that could have had an impact. Note that a high or a low minimum wage shouldn’t really affect wages much, it just tends to keep people unemployed if they don’t have the skills requisite to merit earning at least the minimum wage.
4 CEO compensation — There wasn’t much increase in CEO compensation compared to workers until about 1989:
5 Globalization — This has been happening since the dawn of time and really has no bearing on the 1971–1973 period.
The only clear thing that affected every wage earner in our nation during the 1971–1973 period, where the decoupling of wages from productivity happened, was the United states moving off of the gold standard. I believe that moving off of the gold standard has enabled inflation, manipulation of the money supply, manipulation of interest rates, and ultimately, it’s made it so real wages can’t grow for a typical worker since about 1971. When money is no longer backed by gold or anything else, it’s just paper: fiat currency. The word “fiat” is synonymous with “fake” because the only value it has is that the government says it’s worth something. We can’t expect our wages to increase when we’re being paid with paper.
Wages increases stopped trending in line with increases in productivity around 1973. In 1971, the United States left the gold standard. I do not think this is a coincidence. Leaving the gold standard has suppressed the common man’s wages and kept their wages virtually unchanged for 46 years. We need to return to Gold and Silver money in this nation because that’s what the Constitution demands, and the working man should benefit from it through rising wages and low or no inflation.
