Signs point to greater rich-poor wage gap

During the late 1990s boom, most workers in the United States enjoyed growing prosperity for the first time in decades. Low income workers were even getting somewhat bigger percentage pay hikes than those in upper income brackets.

But the boom has gone bust.

The latest numbers hint at a problem. Wage growth is the slowest it has been since the start of 1995, according to the Bureau of Labor Statistics. In July, the average weekly wage after inflation was $501.71, a 0.8 percent drop from June. Average wages are up only 1.3 percent from July 2001.

In addition, private-sector employment in June remained 2 percent below its February 2001 peak.

Slower wage growth and fewer job prospects means the income gap between the rich and poor could widen again, warns Lawrence Mishel, president of the Economic Policy Institute (EPI) in Washington.

Every two years since 1988, Mr. Mishel and colleagues at the EPI distributes "The State of Working America." Almost 450 pages, the book is hardly popular. At most, 8,000 copies are sold.

But with its analysis and statistics on family income, wages, jobs, wealth, poverty, and international comparisons, it has become a reference book for policymakers and opinion leaders. "It's a bible for workplace reporters," says Mishel.

This year's volume is far less cheery than the 2000 one.

While predictions of a double-dip recession or a jobless recovery could be wrong, Mishel says that unless the economy picks up, "high and rising unemployment will generate wage stagnation, higher poverty rates, and rising inequality."

To avoid this, he calls on Congress to step up federal aid to states and municipalities for building and repairing schools.

This could temper tax hikes and spending cuts prevalent in many states as budget-balancing measures.

It should be done, even if it raises the federal deficit, he says.

Further, the Federal Reserve should lower interest rates to stimulate growth, Mishel says. And Washington should encourage an orderly decline in the value of the dollar on foreign-exchange markets to help US manufacturers increase exports and meet the competition of imports.

So far, strong productivity growth remains a lasting legacy of the "new economy." Combined with low inflation, that has meant wages have outpaced inflation.

But without full employment – unemployment close to 4 percent – "many working people don't have enough bargaining power to claim their fair share of the economy's growth," notes Jared Bernstein, another author of the book.

The unemployment rate now stands at 5.9 percent.

Looking at the long-term outlook for jobs, the Employment Policy Foundation (EPF) in Washington offers a brighter view in its Labor Day assessment.

As baby boomers retire in the next decade, yet still buy goods and services with their pensions and savings, there will be persistent shortages of qualified employees, the study finds. Most new jobs will be good ones.

Those requiring college degrees (two-year, four-year, or advanced) will increase by 20 million as the economy returns to more normal, healthy growth.

At current annual college and university graduation rates – 1.5 million baccalaureate degrees annually, the available supply of new degree-holders to the workforce will fall 6 million, or 33 percent short by 2012.

Ed Potter, president of the EPF, says increased labor-force participation, productivity, education, and immigration are needed to overcome the labor supply gap in the future.

But Mishel at the EPI notes that Americans already are the "reigning workaholics" among the industrial nations.

A larger proportion of working age Americans are employed than in any of these other countries.

Also, the average American worker was on the job 1,877 hours in 2000. Germans worked 1,480 hours, the French 1,562 hours, and the Japanese 1,840.

On Wall Street, some commentators make much of the "democratization" of stock ownership, with about half of Americans now owning shares either directly or through some form of retirement plan.

But the vast majority of American families still depend on their paychecks, not their portfolios, notes Heather Boushey, the third author of the EPI book.

For the bottom 60 percent of families, ranked by income, the average holding of stocks adds up to only about $4,000.

In contrast, the top 1 percent of stock owners hold 47.7 percent of all stocks by value. The bottom 80 percent own just 4.1 percent of total stock holdings.

During the late 1990s, one factor that sent the incomes of executives flying skyward was stock options.

With some $7 trillion in paper wealth gone from the stock market in the past two years, many options are now worthless.

This, Mishel admits, may dampen incomes for many on the upper end of the income ladder for some years ahead.

At the other end of the scale, Congress has yet to raise the minimum wage. That, the EPI notes, exacerbates income inequality.