Wage Rage

Can the US push worker pay up to its 1973 peak?

In election mode, Congress is scrambling to shore up the incomes of working Americans.

This month, Republicans are pushing tax cuts for middle- and low-wage earners. Mostly, they're trying to extend benefits already in place and due to expire. Democrats, led by minimum-wage warrior Ted Kennedy, vow to put more money in people's pockets by increasing the mandatory minimum hourly wage from $5.15 to $7.

Campaigning is obviously at work here, but the issue of boosting wages couldn't be more on the money. In real-dollar terms (adjusted for inflation), many Americans make significantly less today than in 1973, when wage levels were at their highest.

Average weekly wages in 2003 for nonmanagement workers in private industry were actually $116 lower than 30 years before, in real terms, or about $6,000 less a year. This is according to Bureau of Labor Statistics data adjusted for inflation, and then calculated in 2003 dollars by the National Poverty Center at the University of Michigan.

That eye-popping comparison seems to contradict other economic data, such as a steadily upward trend in household incomes as tracked by the Census Bureau over the same period. Household income includes many sources, such as wages, investment income, and public assistance.

Remember, also, that there are many more dual-income households today, and more women in the work force, than three decades ago. As individual workers, however, Americans in the nonmanagerial ranks have a long way to go to catch up to the lusher paychecks of the past.

What's behind wage erosion

The lost ground indicates far bigger issues at work than those being addressed on Capitol Hill - as worthy as some lawmakers' plans are.

High inflation eroded pay in the '70s, and fortunately, today's workers do not have that beast to contend with. But structural changes also played a huge role. New technologies and globalization shrank the number of high-paying manufacturing jobs. Unions, in decline, saw their bargaining power erode. New immigrants - at the rate of about a million a year - also depressed wages.

One powerful engine that does pull up pay is economic growth. Federal Reserve Chairman Alan Greenspan recently forecast rising pay as hiring picks up. Encouragingly, increased pay tracked right along with last week's report of strong job growth in April. Indeed, Americans have the economic boom of the '90s to thank for finally reversing the slide in real weekly wages that began in the '70s.

And compared with many other advanced economies, the US has been able to keep a high living standard and a relatively low unemployment rate. Its productivity has helped keep jobs-killing inflation down. And with its flexible labor force and open trade with other nations, the US has enabled employers to create millions of jobs.

Still, even after real wages recovered somewhat in the '90s, they are nowhere near the 1973 peak. This leaves open the question of whether growth alone can compensate for the structural changes that affected pay.

That's why Congress should set its sights higher than extending tax benefits like the child tax credit (a good idea if it can be offset by budget cuts), or increasing the minimum wage (overdue after a seven-year hiatus).

If Washington - and this means the Bush administration, too - really wants to improve Americans' pay, it has to get at some of the underlying causes of wage erosion.

The long-term view

Education and training remain the key to higher-paying jobs. While the No Child Left Behind Act was a good start, the nation must break the long-term trend in which only 30 percent of high school graduates go to college - and better-paying jobs.

Immigration reform, meanwhile, requires greater emphasis on control and enforcement.

And free trade means more pressure to open up closed foreign markets (kudos to the Bush team for persuading China to let foreign firms distribute goods to its stores without going through state-run enterprises).

Many Americans are not imagining things when they can't figure out how to make their paychecks cover higher health costs, and in many markets, more expensive housing. Let's hope the economic recovery will relieve much of this financial stress. But Washington shouldn't count on it.

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