President Obama and the left repeatedly claim that middle class wages have stagnated for a decade or more, thus justifying more big-government intervention in the economy. As the New York Times’ David Leonhardt writes, “Wages and incomes for most Americans have now been stagnant for 15 years.”
But is the claim true?
The St. Louis Federal Reserve Bank tracks the average hourly earnings of private sector production and non-supervisory employees, that is, non-management, hourly workers. As the FRED graphic shows, over the past 10 years wages have risen at a fairly steady rate. Indeed, they increased at a slightly faster pace prior to the recession—i.e., during he Bush years.
Much the same can be said for wage growth since the early 1970s.
Wages increased by about 10 percent between the end of the recession and today, or roughly 2 percent a year—which was a little higher than the core inflation rate in most years—a point Leonhardt concedes when he says, “Even as job growth has picked up in recent months, wages haven’t grown much more quickly than inflation.”
That’s true, and from an economic standpoint, you don’t want wages rising much faster than inflation. Real wage growth should depend on productivity growth, which has also been fairly flat. Giving people wage increases without productivity increases—as Obama wants to do with his minimum wage increase—are inflationary, because employers are paying more but not getting more for it.
Ironically, wage increases might have risen even faster had Obama not created so much uncertainty in the economy. New laws like Obamacare impose new costs of employers—costs they might have turned into wage increases.
And Obama’s quest to be the King of Regulation also creates a lot of uncertainty. Employers are more reluctant to increase wages, even when profits and cash are up, because they don’t know how much new regulations and restrictions might cost.
If Obama really wants to improve the financial lot of the middle class, he should abandon most of his current economic proposals. The wonder isn’t that wages have grown so slowly, but that given his incessant interventionism that wages have grown at all.