Why Americans Aren’t Paid Enough - YouTube

In June 2022, American workers made an average of

$27.45 per hour.

In 1972, the same workers earned an average of $3.88

per hour. A chart like this might make it seem like

America has come a long way in terms of wage growth.

But when adjusted for inflation, wages have

remained virtually unchanged over the last 50

years, with workers today earning just $0.12 more than

they did in 1972.

When the average American is not seeing his or her living

standards increase over a period of decades, that's

something that should concern us all.

With inflation at its highest since 1981,

Americans are feeling the pain of slow wage growth.

Two thirds of American workers said that inflation

has outpaced any salary gains made in the past year.

Now, because of the inflation, I can't even make

the monthly payments.

So I had to pick extra hours with my elderly care

job.

But some economists argue that the concept is merely a

myth that politicians use to promote their careers.

Politicians win elections by promising to fix something

that is supposedly wrong in people's lives.

And so I think there is a bit of a political cynicism

and calculus involved in the wage stagnation debate

and promises to fix the supposed problem.

So just how real is wage stagnation in America today

and what does it mean for American workers?

Wages in America have stagnated since the early

1970s. But it was 1979 when the gap between workers

productivity and wage began to substantially increase.

Between 1979 and 2020, workers wages grew by 17.5%,

while productivity grew over three times as fast at

61.8%.

It's not true that wages haven't grown at all.

They have, but they haven't grown as quickly as they had

in the past.

Since the eighties, the economy has changed a lot.

We've gone really from an industrial era to a tech era

. When you have these big changes to the economy,

sometimes the gains are not equally felt, but it really

has an impact on everyone's lifestyle and everyone's

wages.

Wage stagnation is worse for lower and middle income

earners. The bottom 90% of American workers saw their

annual wages increase by 28.2% from 1979 to 2020,

while wages for the top 1% increased by 179.3%.

Meanwhile, the top 0.1% saw an astonishing growth of

389.1%.

Real wages, which means that after we adjusted for

inflation, is not the reason that much since the

late 1970s.

We know that, on the other hand, inequality did rise

over most of this period.

I've been working about since the nineties when I

came here. That's about 30 years on and off.

And there was very little raise for domestic workers

in general.

Now, after the 2020, with the inflation, I feel like

the income stayed the same.

People lost some of the jobs, like in my

experience, and we have to struggle to find different

or secondary job or second part time job just to

maintain the monthly expenses of our daily

living. It's very hard.

Despite causing severe disruption to the U.S.

labor market, the COVID pandemic has led to

surprising wage gains across industries.

COVID has actually seen a significant acceleration in

wage growth, particularly for low wage earners.

This reflects a really serious tightness in the

labor market due to excessive U.S.

demand, whether it's from the Federal Reserve or

through fiscal stimulus payments, but also

restrictions on labor supply, immigration

restrictions, early retirements and, of course,

illness or deaths.

So that has driven substantial wage gains.

How to tell whether that's the new reality?

And that's why I want to be cautious.

Did it change our life forever and maybe for the

better in terms of labor market and wages?

We have to wait and see.

Automation is one explanation for wage

stagnation in America.

The McKinsey Global Institute predicts that 45.3

million workers will lose their jobs due to

advancements in technology by 2030.

Automation has been a really big factor so far in

especially manufacturing jobs.

So before, you built a car, you used machines, but there

was a lot of sort of hands on work with it.

Now much more of that is done with machines and you

have to be a lot more skilled to use those

machines, which means that a lot of the routine jobs

have disappeared or they're very poorly paid.

Over the next two or three decades, a lot of economists

believe that there's going to be a lot of disruption in

the labor market because of new automation.

And even college-educated workers, that financial

assistance and accounting and even some parts of

medical diagnoses will be done by machines with

artificial intelligence, so a lot more of us might be

facing that competition from these machines.

Globalization is another reason for wage stagnation,

forcing domestic workers to compete against unfair

competition.

And in a lot of countries, workers are paid a lot less.

So now, particularly if you don't have a lot of very

specialized skills, you're competing in that market.

And that means that a lot of sort of routine office

work and manufacturing work is going to go overseas.

But that isn't all bad news for Americans.

It's important to remember that meant goods got a lot

cheaper. It's one of the reasons we had such low

inflation since the eighties.

And everyone benefited from that.

But that said, I think economists like me were a

little cavalier that we saw the economy growing and

people doing better about the people who were hurt.

And we still don't really have good solutions to help

people like that.

Economists suggest that labor dynamism also played a

bigger role than expected.

American workers today are changing jobs less

frequently than before, even though job switching

leads to strong take-home pay growth.

While some Americans don't switch their jobs out of a

desire for stability, others can't because there

is nowhere else to go.

In many local markets, companies use the lack of

competition to suppress their workers wages.

The notion of monopsony power is that you have a

local labor market.

Let's say that you live in a particular city or any

particular town, and in that town there is one

employer, and given that there is only one employer

there, then they set the wages in a way that's lower

than what you would otherwise expect them to

pay. This was a fully competitive market.

60% of U.S.

labor markets are considered highly concentrated, meaning

a few employers are competing for local workers.

Just 10% more workers in an area can lead to about a 1%

reduction in posted wages.

I've asked a couple of families over the years,

that was still before Corona, for $10 raise and

they just declined.

They said they'll find somebody cheaper and we

practically lost the job.

In case after case, you see that government policies

were implemented to discourage labor dynamism

and to discourage workers from moving to a better job

or moving to a better town or city to improve their job

prospects. And this inevitably will weigh on

wage growth over time.

Companies can also play a direct role in stifling the

competition with methods like non-compete agreements.

Roughly half of private sector U.S.

businesses that responded to the EPI's survey said at

least some of their employees are in non-compete

agreements, meaning some 36 to 60 million private sector

workers in America are subject to non-compete

agreements.

The non-compete clause would lead you to stay with your

current employer, not to move, because the

consequences would be that it would be more difficult

for you to find employment.

And if you are less likely to leave the job, you'll be

tied in or locked in to the current employer, which

means that the likelihood that that employee would

keep getting his or her lower earning is much

higher. There's rationale for it at the very high end

of the income distribution of the skill set, but I

don't see much of a reason to have it for rank and file

employees.

Meanwhile, unions that originally fought for higher

compensation have drastically lost its power

over the years.

Union membership in the U.S.

fell from 20% of American workers in 1983 to just

10.3% in 2021.

Workers in unions typically earn higher wages, about

10.2% more compared to similar non-union workers,

thanks to methods such as collective bargaining.

In those industries where unionization stayed somewhat

high, the effect of market power or monopsony of the

employer on wages was muted.

So the unions were able to bargain on behalf of the

employees even when they were dealing with large

employers. So wages were less stagnant or didn't

decline as much.

But some suggest that wage stagnation is an issue blown

way out of proportion.

The issue we have in the wage stagnation debate is

that a lot of researchers have been using a certain

inflation metric, the consumer price index, that

really dramatically overstates inflation over

time. So if you look at two periods, you see that those

expenses per CPI have gone up far more than they

actually have.

That means it makes it seem like your wage increase is

much smaller than it really actually is.

You're actually able to buy a lot more with your nominal

wage than these researchers say you can.

So that's why most researchers, including the

Federal Reserve, like to use a different measure of

inflation: the personal consumption expenditures or

PCE. The PCE shows a much more moderate inflation over

the last several decades.

When you apply PCE to nominal wage growth, you

discover much higher wage growth for middle income

workers. In other words, no wage stagnation at all.

And in fact, a pretty nice gain over the last 30 years.

Focusing on broad national data over individual

experiences can create another issue.

They see, Ah, the percentage of low wage professions has

increased. Therefore, we have wage stagnation or

decline. What they don't do is they don't actually look

at the people in those professions and what their

wages have done over time.

So for example, you can have someone who is a

janitor who works for 30 years and actually made

substantial increases in wages and earnings over that

time. That would be lost.

If you just look at janitors overall.

I think it is technically a myth and I think it is

overblown to say that people aren't better off

than they were in the seventies. It's just

patently absurd.

I think everything about our lifestyle and our living

standards are higher.

And even our real wages are technically higher.

But I think there is something to the fact that

wages aren't growing as fast as they used to for

most people. So people don't feel like they're

equally sharing the same prosperity. And I think that

that is a problem that's leading to a lot of social

unrest.

Legislation could help solve some of the biggest issues

causing wage stagnation in America.

There is a limited amount that we can do through

policy when you have big changes in technology,

globalization, forces like that.

But policy can matter a lot.

For instance, things like those non-competes, I think

that's adding to wage stagnation and you shouldn't

have non-competes, particularly for low-skilled

jobs.

We could pass legislation to make it easier for workers

to unionize.

There is a bill called the PRO Act, Protect Our Right

to Organize, that the House of Representatives has

already passed. It's dead in the water in the Senate.

I think we also really need to embrace more of the gig

market, which, so far, I feel like we're trying to

pretend doesn't exist and making it sort of a lower

tier part of the labor market. But is it if we sort

of allow those platforms to offer health insurance, then

I think it could become better quality jobs that are

more dynamic and let people get more the upside risk and

not just the downsides.

The rise of remote work could also be beneficial to

wage growth in local markets.

Some employers are very happy to have their

employees working remotely.

In a way, if you can work remotely, at least you know

when you think about monopsony power, you are

diminishing the monopsony power of an employer

because if you are a talented person, even if you

are in a small town where there's only one or two

large employers, you can work for a global firm that

can be based in any other part of the world or the U.S

. and work remotely and earn a higher wage.

Achieving a fair wage for all Americans is vital in

ensuring the success of the American economy.

There's a basic, not just a basic sense of fairness,

there is something historically we have called

the American Dream.

It attracts immigrants to our shores.

It motivates all kinds of people to innovate and make

the economy productive.

And wages really, in some ways, are a reflection of

the productivity and skills of American workers.

So if wages are stagnating for a whole bunch of people,

that means that we are not becoming as productive a

country as we can be.

That means the whole economy is not working as

well as it can be.