We are taught from a very young age that if we are willing to stay in school, study hard, and work even harder, we can achieve anything we want. We are taught that we can all achieve the American Dream, no matter what each of us personally believes that dream to be. So most of us stay in school; we study hard and we graduate high school, convinced that our slice of the pie is out there, we just have to work hard to get it. Some of us continue on to higher education, eventually receiving the degree we have been promised will open all the doors for us. Others dive right into the work force, either because we can’t afford higher education, or because we want to take some time, see what is out there, and evaluate what it is we want to do with our lives. Whether we get that degree or not, we all know that we will start out on the bottom, but that’s okay. We remember all the lessons we were taught about working hard, and about how hard work will get us to the top. What happens when hard work does not get you to the top? What happens when hard work is barely enough to make it month to month? According to The Working Poor Families Project Winter 2010-2011 Policy Brief, in 2009 there were more than 10 million low-income working families in the US, which was a quarter million more than the year before (Roberts et al. 1). Are Americans getting lazier, and just not working as hard or as much? No. Since 1980, wages for most Americans have not kept up with the cost of living, and this trend has been a huge factor in the current economic climate that the US is experiencing today.
The CPI (Consumer Price Index) was 127.1 in 1980, and was 320.2 in 2010 (Denava-Walt et al.). These numbers will be used to determine the inflation rate for the 30 years from 1980-2010. 320.2-127.1/127.1 equals the inflation rate. From 1980 to 2010, there was an inflation rate of approximately 151.9%. In 1980, federal minimum wage was set at $3.10 an hour, and in 2010, federal minimum wage had risen to $7.25 an hour, according to The Department of Labor. Over that 30 year span, federal minimum wage was increased by 23%. The median family income in 1980 was $21,020 (U.S. Bureau of the Census). By 2010, the median family income had risen to $61,544 (Denava-Walt et al.). Those numbers show a 29.2% increase in the period between 1980 and 2010. In the last 3 decades, inflation has risen 151.9%, while minimum wage has only risen 23% and median family income has only risen 29%.
The discrepancies between these numbers would make sense if worker productivity had gone down. After all, no one gets paid more to produce less. This is not the case though. According to Frank Levy and Tom Kochan of the Employment Policy Research Network, worker productivity has increased by 78% since 1980. Yet the median compensation of 35 to 44 year-old male high school graduates (no college) declined by 10%, and median compensation of 35 to 44 year-old male college graduates grew by 32%, less than half as much as overall productivity growth. Only median compensation of 35 to 44 year-old men with post-graduate training comes close to matching the labor productivity growth increase by increasing 49% (2).
It would be easy to blame a lack of income growth on the Great Recession being experienced in the U.S. today. However, there is strong evidence to show this has been in progress before the Recession started. According to Vice President Joe Biden, from 2001 to 2007 (before the recession started) worker productivity was up 20%, but median income of the middle class dropped by $2,100 (“Biden says Middle Class”). The lack of income growth is also not spread evenly throughout all earners. A report published in September 2010 by the US Congress Joint Economic Committee titled Income Inequality and the Great Recession found that:
Over the past three decades, income inequality has grown dramatically. After remaining relatively constant for much of the post‐war era, the share of total income accrued by the wealthiest 10 percent of households jumped from 34.6 percent in 1980 to 48.2 percent in 2008. Much of the spike was driven by the share of total income accrued by the richest 1 percent of households. Between 1980 and 2008, their share rose from 10.0 percent to 21.0 percent, making the United States as one of the most unequal countries in the world. Moving even further up the income distribution, the share of income accruing to the wealthiest 0.1 percent of households – those with incomes of at least $1.7 million in 2008 – has grown sharply as well. In short, the evolution of income inequality in the United States is largely driven by the trends at the very top of the income distribution, as very wealthy households have continued to accrue an ever‐greater share of the nation’s total income (2).
Basically, for the last 30 years, the rich are getting richer, and everyone else is getting poorer.
What does this mean for the U.S. economy? There are 2 major problems associated with wages not keeping up with inflation. The 1st problem is the number of people who are paying taxes, and the amount of taxes they are paying. Taxes keep our government functioning. Currently, the United States government is not bringing in enough revenue to finance all the programs it runs. Our national deficit sits currently at $ 1 5, 0 5 9, 4 8 3, 0 0 0, 2 0 1.2 0. For every dollar we spend, we have to borrow 40 cents. It doesn’t take a business major to tell you that this is a quick way to fail! On July 7, 2011, Sen. John Cornyn, R-Texas stated that 51% of American households paid no income tax in 2009. And what’s more, 30% of those households ended up getting money back (“John Cornyn says”). This means the income tax burden for the entire country falls on just 49% of Americans. According to facts collected by the Tax Foundation, in 2009 the amount of individual income tax paid steeply declined by $166 billion, twice the decline from 2007 to 2008. The average tax rate for returns with a positive liability went from 12.24 percent in 2008 to 11.06 percent in 2009 (Logan). At a time when the government is spending more money than ever before, the tax revenue is declining. A commonly voiced solution to this is to just tax the wealthy. At this point, we could tax the wealthy 100% of their income, and we probably would still not have enough revenue to cover everything that needed to be paid. Raising taxes on most Americans right now would be crippling to them, and would also cripple any sort of recovery the economy has been able to achieve. However, if wages were brought up to match inflation, many more Americans would step up into a higher tax bracket. This would enable them to actually to pay their income tax while still supporting themselves and their families.
The 2nd problem with wages not keeping up with inflation is the extreme financial burden it puts on the government to support the American people. Due to the huge increase in the price of living (due to normal inflation), more and more Americans are having a hard time making ends meet. The official poverty rate in 2010 was 15.1% (46.2 million people),the largest number it has been in the entire 52 years for which poverty estimates have been published (DeNeva-Walt). This has led to 1 in 6 Americans being enrolled in government anti-poverty programs. As of August 2010, 50 million people were enrolled in Medicaid, more than 40 million used food stamps, 10 million received unemployment insurance, and more than 4.4 million people were on welfare. The federal price tag for Medicaid has jumped 36% in two years, to $273 billion. Jobless benefits have soared from $43 billion to $160 billion. The food stamps program has risen 80%, to $70 billion. Welfare is up 24%, to $22 billion (Wolf). It becomes a double edged sword, where state and federal agencies are overwhelmed by the amount of need, and yet tax revenues are down, which in turn leads to having to borrow more just to keep things running.
The Great Recession was caused by many things, and it will take more than one solution to fix it and get America back on track. Wages keeping up with inflation would be a good start. The government can throw as much money as they want at the failing economy. It will not have any effect until the American people once again are able to work hard and actually achieve the American dream.
December 1, 2011
Works Cited
DeNava-Walt, Carmen, Bernadette D. Proctor, and Jessica C. Smith. U.S Census Bureau. Current Population Reports. P60-239. Income, Poverty and Health Insurance Coverage in the United States: 2010. http://www.census.gov/prod/2010pubs/p60-238.pdf
Levy, Frank, and Tom Kochan, et al. Addressing the Problem of Stagnant Wages. 2011.
Logan, David S. “Summary of Latest Federal Individual Income Tax Data.” Tax
Foundation. 24 October 2011. http://www.taxfoundation.org/news/show/250.html
PolitiFact.com. “Biden says middle income earners lost ground before the recession.” 18 November 2011. http://www.politifact.com/truth-o-meter/statements/2011/nov/18/joe-biden/biden-
PolitiFact.com. “John Cornyn says that 51 percent of American households pay no income tax.” 8th July 2011. http://www.politifact.com/truth-o-meter/statements/2011/jul/08/john-cornyn/john-cornyn-says-51-percent-american-households-pa/
Roberts, Brandon, Deborah Povich, and Mark Mather. Great Recession Hit Hard at America’s
Working Poor: Nearly 1 in 3 Working Families in United Sates are Poor. Winter 2010-2011.http://www.workingpoorfamilies.org/pdfs/policybrief-winter2011.pdf
U.S. Bureau of the Census, Current Population Reports, Series P-60, No 132. Money
Income of Households, Families and Persons in the United States: 1980. U.S.
Government Printing Office, Washington D.C. 1982.
U.S. Congress Joint Economic Committee. “Income Inequality and the Great
Recession.” September 2010
http://jec.senate.gov/public/?a=Files.Serve&File_id=91975589-257c-403b-8093-8f3b584a088c
Wolf, Richard. “Record Number in Government Anti-Poverty Programs.” USA Today.
30 August 2010.
http://www.usatoday.com/news/washington/2010-08-30-1Asafetynet30_ST_N.htm