Are Stagnant Wages Really a Problem?
January 10, 2013
– Comments (2)
Board: Macro Economics
Author: KluverBucy
The previous post by LorenCobb comments on the "American Crisis of the Middle Class" and provides the following statistics on stagnating wages: "Median male wage income was a little over $33,000 in 1969 and, adjusted for inflation, stayed stagnant with minor ups and downs to be about $32,000 in 2010.
I have seen similar numbers quoted frequently and the authors all seem to imply that such "stagnant wages" are a major problem. Certainly at first glance it sounds depressing that median wages (when adjusted for inflation) have not grown for 30 years. But I always have this nagging question whenever I hear this stat: "why is it bad?" In 1969, the United States was by most measures the wealthiest and most prosperous nation on earth, with perhaps the highest standard of living. The above statistic implies that over a 30 year period the median wage earner has maintained his purchasing power despite inflation. Hence, the average American has retained his ability to enjoy an incredibly high standard of living (compared with the rest of the world) for three decades - despite the major wage pressures created by globalization over that period.
In these discussions, is it really the starting premise that wages should indefinitely continue to rise beyond the rate of inflation? How can that type of exponential growth be expected to continue forever? To me, that creates the same theoretical problems seen in other exponential growth situations such as populations or money supply. In most systems, be they biological or financial, exponential growth cannot last forever and eventually a steady state must be achieved or a systemic collapse will occur. Now, in this era of globalization, I would expect individuals in poorer countries to continue with wage growth in excess of inflation until their standard of living is roughly on par with the first world nations. At that point, labor would be compensated equally across the globe and a "steady state" would be achieved. Of course, the alternate path to that "steady state" is declining wages and standards of living in the US (and other prosperous nations). Given those two paths, merely having stagnant wages in the US seems like a good outcome.
The next problem often identified as being caused by "stagnant wages" has been the requirement of the average wage earner to take on increasing amounts of debt to maintain their standard of living. But is that really the case? I would argue that the "standard of living" has actually increased over the last 30 years. The average square footage of homes has increased by about 20%; a standard car of 1970 pales in comparison to a 2010 model; computers, HD TVs, cell phones, high speed internet, and cable TV are common in many/most households. Clearly our standard of living has increased ,and it is that increase that has required the average wage earner to become so indebted. So. this of course brings up my next question: "can we really expect our standard of living to increase forever?". Once again, it seems as though a "steady state" must be obtained; hence, either poorer nations will increase their standard of living or ours will decline. But, until the rest of the world starts to catch up, I don't see how it is realistic (again in the context of globalization) to expect our standard of living to continually increase. What would be so tragic with the average US wage earner owning a smaller home (large by international standards), driving a car for more than 5 years, choosing between a smart phone or cable TV, staying out of debt, and enjoying the same standard of living (amongst the highest in the world) that his parents did?
KB
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