Employer practices

The Challenge of Slow Wage Growth

William J. CongdonOctober 07, 2020

While lawmakers, advocates, and other policy actors are rightfully focused on the immediate public health and unemployment crisis wrought by the COVID-19 pandemic, the deeper and more systemic challenge of slow wage growth over the past four decades has amplified the economic burdens workers—particularly low- and middle-wage workers and workers of color—are currently experiencing.

In this brief, we discuss the performance of the United States labor market for the typical worker over the longer term by focusing on wages, which are a key indicator of worker well-being and labor market health. In reviewing the evidence, we find that:

  • Middle- and low-wage workers today are doing little better in real terms than similarly situated workers 40 years ago. Since 1979, workers earning wages at the middle of the wage distribution have seen the equivalent of an annual raise averaging far below 1 percent a year.
  • While the U.S. economy has grown during this time period, this growth isn’t evident in wages. Compared with essentially stagnant wage growth, the economy has nearly doubled in size in real, per capita terms since 1979, and productivity has risen approximately 70 percent.
  • Slow wage growth also constrains prospects for rising living standards and upward mobility for many individual workers. Evidence of limited or declining economic mobility for workers at the middle and bottom of the wage distribution is consistent with slow wage growth.
  • Racial and gender gaps in wages have persisted over time. Women’s wages have risen significantly over 40 years, yet their median wage remains below that of men. The wages of Black and Latinx workers have grown even more slowly than those of white workers.
  • Increases in nonwage compensation such as employer-paid portions of health insurance and the growth in social safety net programs such as the earned income tax credit have offset the effects of slow wage growth for some workers to some degree.

We conclude by highlighting both key lines of inquiry researchers have pursued when delving into the “why” of slow wage growth, as well as the tools policymakers have at their disposal to move towards changing the wage trajectory for the next generation of workers. A recovery from the current recession that fails to also tackle the larger project of rebuilding a labor market that provides sustained, real wage growth will be insufficient to restore prosperity and upward mobility for too many workers.

This brief was corrected on October 12, 2020; a previous version did not acknowledge all WorkRise funders.