T ime was, only progressives made outlandish claims such as that hourly wages have been stagnant for more than half a century. But with the rise of populism on the right, “doomerism” now transcends ideology. It’s the national-conservative group American Compass that is now saying that the typical worker makes only 1 percent more today than he did 50 years ago. This doomerist Right is as wrong as the old declensionist Left.
As I show in a new paper, the truth is that the typical worker aged 25 to 54 makes 32 percent more than the typical worker did in 1973. The increase has been at least that large for whites, blacks, Hispanics, and other workers. Moreover, the typical worker’s pay has risen as much as economic fundamentals would predict, with one important historical exception. Populist demonization of employers and the rich may feel good, but the best way to increase wages is still strong economic growth.
While the rise in hourly compensation has been over 30 times larger than American Compass research shows, some argue that pay should have grown by more. For instance, in 2022, President Biden’s Council of Economic Advisers highlighted that the hourly pay of the “typical worker” has grown much more slowly than the value of what workers have been producing since the mid 20th century, warning that “the divergence between the two trends suggests that there may be forces suppressing the pay of workers relative to their productivity.”
Productivity growth is, indeed, a fair benchmark for assessing trends in pay. If the value of what workers produce goes up, their compensation should go up correspondingly. The Biden CEA’s report shows productivity rising 62 percent from 1948 to 2020 and hourly pay increasing by just 18 percent. However, this study and others like it suffer from as many as a half dozen distinct apples-to-oranges comparisons. For example, they adjust the two trends for inflation inconsistently, or they compare productivity among one group of workers with the pay of a different group. I show six different ways in which aggregate pay is pretty much exactly where productivity trends would predict, whether we compare it with aggregate pay 50 years ago, in the mid 20th century, or right before the Great Depression.
What studies like the Biden CEA’s reveal is that the pay of the median worker — the one who would be right in the middle if workers were arrayed from poorest to richest — has not kept up with overall productivity growth. Then again, economic theory predicts that the median worker’s pay would rise at the same rate as the median worker’s productivity. Unfortunately, we do not have measures of individual workers’ productivity nor the productivity of the median worker. But my review of the evidence suggests that productivity has grown unequally across industries, across firms within industries, and across workers within firms. Median pay has likely tracked median productivity much more closely than the Biden CEA suggests.
Another reason median pay has lagged aggregate productivity growth involves that historical exception. Men and women have seen very different gains in median compensation over time — a 68 percent rise for women and just 14 percent for men since 1973. Here, too, analysts are often confused, attributing men’s worse performance to “skill-biased technological change” or a failure of the labor market to provide good jobs for less skilled men. But something else has been going on. Strikingly, the lowest-earning women have seen stronger pay growth than all but the richest men — 59 percent for the tenth percentile of women versus 48 percent for the 90th percentile of men. Whatever has affected growth in men’s pay, it has affected men from all walks of life.
I argue that men were the victims of two historical shifts. First, the industrial economy gave way to one based on services — a trend common to developed countries around the world, rooted in the universal fact that as people get richer, they demand more services. (Think health care.) Because men dominated the old high-productivity goods-producing sectors, which also featured high productivity growth, their productivity suffered as they moved to the lower-productivity (and lower-productivity-growth) service sector. Their wages followed. In contrast, women benefited since they were underrepresented in goods-producing sectors and were able to access high-productivity jobs in the service economy as occupational barriers to women fell.
The second historical shift is related to trends in median pay not apparent when using a starting point of 50 or 75 years ago. Median pay outgrew aggregate productivity during the New Deal era, and then it remained elevated until finally converging with the productivity trend in the early 1990s. A comparison that begins with a year such as 1948 or 1973 shows relatively slow growth in median pay because pay had been too high relative to productivity at that point.
This “unmooring” of pay from productivity coincides with New Deal policies that furthered the male-breadwinner ideal, in no small part by promoting unionization. Many men were paid more than their productivity levels merited because of the pervasive view that a single male breadwinner should be able to raise a family on one income. As more and more wives worked more and more during the 1970s and 1980s, “breadwinner rents” dissipated and growth in men’s pay stagnated or declined. Eventually, after pay returned to the levels merited by their productivity, men’s pay began again to rise with productivity.
Fortunately, the transition from this era is behind us; median men’s pay has increased by 19 percent since 1996. That’s still not as fast as the 36 percent increase in women’s pay. But I speculate that the decline in marriage and fertility has dampened pay growth among married and single men by relaxing the expectation for them to be breadwinners.
Doomerist claims that economic growth no longer benefits the typical worker are misinformed. With the transition from an industrial male-breadwinner era behind us, men and women alike will see their pay increase over time. Policies should aim at increasing productivity, and especially at increasing the opportunities for children and young adults to develop skills that will qualify them for higher-productivity work. And we can help men (and women) by reviving marriage without needing to revive the male-breadwinner ideal.