Common Dreams: Overworked and Underpaid? Productivity Increases, But Wage Growth Declines

September 1, 2010- As Labor Day approaches, many Americans are breathing a sigh of relief for the extra day off. On a day that celebrates unions and the eight-hour work day, many workers are feeling like their hard work isn’t exactly paying off the way it used to.

Even as productivity has continued to climb, wages have been either stagnant or declining. Household income for the average working family has continued to fall, but men, latinos and those without a college education have experienced an especially sharp deceleration of wage growth since the recession, according to a new briefing paper by the Economic Policy Institute.

The Washington, D.C.-based think tank says that from 2002 to 2007, productivity rose 11 percent but the hourly wage for high school and college educated workers fell. In fact, the average median household income (adjusted for inflation) actually earned $2,000 less during that period, going from $60,804 to $58,718. For the first time, family income levels sunk below what they had been at the beginning of the economic cycle.

Typically, an era of higher productivity would also cause wages to rise as workers receive compensation for harder work. Instead, the opposite has been happening. As many companies have reduced staff to cut costs, employees have been squeezed to work longer and produce more. And with productivity falling slightly for the first time in more than a year, many workers have likely reached their threshold this past Spring.

That's because the labor isn't transferring to the employee paychecks. Nominal wage growth in the private sector was 3.4 percent before the economic crisis, but fell to 1.6 percent by the recession’s third year. Similarly, wage compensation dropped from 3.1 percent to 1.8 and most of the benefits went to the upper class. From 1989 to 2007, the top one percent of households earned 56 percent of the total income growth. The bottom 90 percent received a total of 16 percent.

This isn’t surprising since the trend has actually been ongoing for the last 30 years. The reasons wages have continued to stagnate are varied. But could the lack of wage growth be also tied to labor’s declining membership? Workers who belong to unions enjoy better pay and benefits than non-unionized employees. In a Washington Post column by Katrina vanden Heuvel, The Nation magazine editor and publisher, describes how unions were able to raise American living standards:

“But when unions represented over 33 percent of all private workers in the 1940s, they drove wage increases for everyone — non-union firms had to compete for good workers. Now, unions struggle just to defend their members' wages and benefits. Over the past decade before the Great Recession, productivity soared, profits rose and CEO pay skyrocketed, but most workers lost ground.”

The wage stagnation and its correlation to unionization is not far fetched. Change to Win, a coalition of several union organizations, points out that the peak of real wages was in 1972 when private sector union membership was 28 percent. They write:

Workers are now earning only 83 cents of every dollar they earned more than 35 years ago, while their productivity has increased a dramatic 80%. This is the central explanation for the explosion in corporate profits and the growing income gap in America, and the reason workers in America still believe the economy is moving in the wrong direction.

Still, with less than 13 percent of the workforce belonging to a union, it’s difficult to get the same strength in numbers to raise the standard of living for everyone. The power of collective bargaining has been a central tenet to negotiating a living wage. But the small union numbers, coupled with companies invoking the current economic climate to justify concessions, has eroded the negotiating power of the average worker.


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