Press Releases | Wages, Incomes, and Wealth

News from EPI Wage growth collapsed during the recession, EPI report finds

For Immediate Release: Tuesday, August 31, 2010
Phoebe Silag or Karen Conner, 202-775-8810

The U.S. labor market has seen a broad-based collapse of wage growth over the last two years, a new Economic Policy Institute report finds. The report, Recession Hits Workers’ Paychecks: Wage growth has collapsed, by EPI researchers Lawrence Mishel and Heidi Shierholz, examines nominal hourly and weekly wage trends. It finds that in the most recent data, wages grew at less than half the rate they were growing during the period immediately prior to the recession. This deceleration is occurring across almost all major occupational groups.

The wage deceleration has been more pronounced for men than for women. In fact, men saw a decline in nominal wage growth—in the first year of the downturn, from the second quarter of 2007 to the second quarter of 2008, men’s wages growth was at 5.3% and, in the most recent data, from the second quarter of 2009 to the second quarter of 2010, it was at -1.3%. Women’s wage growth dropped from 5.2% to 3.7% over the same time period. Men at every education level experienced the deceleration in wage growth, while the results for women were more volatile.

Not only has collapsing wage growth had a negative impact on family incomes and living standards, it could also be a severe drag on the economic recovery. Subdued wage growth will last at least as long as high unemployment does, and most likely longer, because wage trends lag behind changes in the labor market. Unemployment is expected to exceed 9% through 2011 and will not return to pre-recession rates until 2015 or later.

The collapse in wage growth has exacerbated a problem that has developed steadily over the past 25 years: the decoupling of pay and productivity. In recent decades, growth in productivity has not resulted in wage gains for workers. This decoupling was particularly apparent during the recovery period of the last business cycle, from 2002 to 2007, when productivity grew 11% but the hourly compensation of the typical high school- and college-educated workers fell. In other words, the majority of income growth in the United States has gone and continues to go to the very top earners.

This report is the first in a series of State of Working America publications.