First half 2017 data reveal broadly based wage growth, but inequality persists

Earlier this year, I wrote about the state of American wages through 2016. Now, we have a chance to see what’s been happening to wages in 2017 by examining wages in the first half (FH) of the year. In the table below, I present EPI’s most up-to-date real (inflation-adjusted) hourly wage series from the Current Population Survey (CPS) across the wage distribution. I compare the most recent six months of wage data with FH2016, FH2007, and FH2000.[1] My conclusions about FH2017 data are fairly consistent with what I found when I analyzed the 2016 data compared to previous years. Preliminary findings from 2017 suggest more broadly based wage growth—with significant gains at the 10th percentile—associated with an economy approaching full employment as well as state-level increases in the minimum wage. That good news is tempered by the fact that the vast majority of workers are, in reality, only beginning to make up for lost ground, rather than getting ahead, and wage inequality is still far greater today than in 2007 or 2000.

Table 1

Hourly wages by wage percentile, FH2000–FH2017 (FH2017 dollars)

Wage by percentile
Year  10th  20th  30th  40th  50th  60th  70th  80th  90th  95th
FH2000 $8.98 $10.89 $12.85 $14.79 $17.25 $20.43 $24.22 $29.40 $38.45 $48.91
FH2007 $9.14 $11.15 $13.02 $15.31 $17.83 $21.11 $24.95 $30.76 $41.01 $53.24
FH2016 $9.39 $10.85 $12.99 $15.33 $17.99 $21.37 $25.61 $32.03 $44.32 $59.11
FH2017 $9.85 $11.12 $13.19 $15.46 $18.17 $21.74 $26.09 $33.00 $45.60 $59.95
Percent change
2000-2007 0.3% 0.3% 0.2% 0.5% 0.5% 0.5% 0.4% 0.6% 0.9% 1.2%
2007-2017 0.8% 0.0% 0.1% 0.1% 0.2% 0.3% 0.4% 0.7% 1.1% 1.2%
2016-2017 5.0% 2.4% 1.6% 0.9% 1.0% 1.7% 1.9% 3.0% 2.9% 1.4%
2000-2017 0.6% 0.1% 0.2% 0.3% 0.3% 0.4% 0.4% 0.7% 1.0% 1.2%

Note: The xth-percentile wage is the wage at which x% of wage earners earn less and (100-x)% earn more.

Source: EPI analysis of Current Population Survey microdata

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Real wage growth over the last year is broadly based and stronger than the wage growth we’ve seen for much of the economic recovery from the Great Recession. This type of growth is expected as we continue to inch towards full employment. When the unemployment rate falls even as more workers are drawn into the labor market, available workers of all types become scarcer and employers have to increase wages to attract and retain the workers they want. Lowered unemployment has, in the past, benefited low-wage workers more than middle-wage workers and middle-wage more than higher-wage workers. Though we’ve seen slow but steady improvement over the last several years, today’s labor market still exhibits a fair amount of slack with a weaker prime-age employment-to-population ratio that we’ve seen at other times of similar unemployment rates and nominal wage growth slower than target levels.

Nominal (non-inflation adjusted) wage growth is a key measure the Federal Reserve and others use to gauge slack in the labor market and to search for wage-driven inflationary pressures. (We use the inflation-adjusted series to look at how the labor market relates to living standards.) When I examined nominal wage growth in the CPS, I see no sign of consistent acceleration across the wage distribution over the last year compared to the year before. This is consistent with the lack of acceleration in the monthly nominal wage series provided in the Bureau of Labor Statistics Employment Situation from the establishment series. If the Fed takes a serious look at these wage data, it is clear that they should resist raising rates further and let the economy continue chugging along toward full employment. If it does, we can expect continued broad based wage growth. If they don’t hold off, we may not reach genuine full employment that will enable the recovery to benefit the vast majority. The costs of prematurely declaring full employment and working to slow the recovery far exceed the costs of waiting too long to restrain growth and allowing some wage and price inflation.

Over the last year, real wage growth for the lowest wage workers was particularly strong. The 10th percentile wage grew 5.0 percent between FH2016 and FH2017. While there is some volatility due to the sample sizes of the state-level data making it difficult to analyze on a part-year basis, it is likely that the disproportionate wage growth at the 10th percentile is related to the fact that 19 states increased their minimum wage at the beginning of the year (and three states and DC increased between June and December 2016). David Cooper and Janelle Jones estimated that the minimum wage increases at the beginning of the year lifted pay for over 4.3 million workers. They note that this is the largest number of states ever to increase their minimum wage without an increase in the federal minimum and that millions more could benefit from an increase in the federal minimum wage.

What the trends in wages over the last year means is that most workers are just beginning to make up for lost ground rather than getting ahead. Rising wage inequality continues to be a defining feature of the American economy. The figure below illustrates the cumulative wage changes from FH2000 and FH2007 to the most recent data for the first half of this year. With the exception of the 10th percentile wage discussed previously, wage growth since FH2000 exhibits a stair step pattern, increasing as one moves up the wage distribution. This growing inequality is nothing new—a continuation of trends since the late 1970s. A look at the three decades prior to the 1970s illustrates how uneven wage growth hasn’t always been a defining feature of the US economy.

Figure A

Wage changes by decile and the 95th percentile, FH 2000–FH2017 and FH2007–FH2017

Percent change FH2000-FH2017 Percent change FH2007-FH2017
10th 9.8% 7.8%
20th 2.1% -0.4%
30th 2.7% 1.3%
40th 4.5% 1.0%
50th 5.3% 1.9%
60th 6.4% 3.0%
70th 7.7% 4.6%
80th 12.2% 7.3%
90th 18.6% 11.2%
95th 22.6% 12.6%
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Note: The xth-percentile wage is the wage at which x% of wage earners earn less and (100-x)% earn more.

Source: EPI analysis of Current Population Survey microdata

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Zooming in on the period since just before the Great Recession hit (FH2007-FH2017), we can see just how slow wage growth has been for many workers even as the economy has been in recovery for several years. The 20th percentile wage is still below where it was in 2007 and moderate wage workers (broadly defined as those in the 30th to 50th percentile) saw much slower growth than workers at the top (90th and 95th percentiles).

If the economy can be allowed to get back to full employment, we should see stronger and more broadly based wage growth to begin to reverse some of the inequality and increase living standards for the vast majority. We saw that happen in the late 1990s and 2000, when the unemployment rate was persistently low and allowed to fall below 4.0 percent for five months. Policy allowed that to happen. We can do the same today using the monetary and fiscal policy levers available. While economic history illustrates the possibility, policy makers need to decide to make it happen.

[1] I compare first halves only for consistency because they are not seasonally adjusted series. For EPI methodology in constructing those data percentiles, please see EPI’s data library documentation.