What happened to wages?

[hobbsyoyo]

In the US, this month marks the 10th straight year of job growth. This is unprecedented for recent American history yet people are still being pinched economically as wages have been stagnant since the 70's when adjusted for inflation.

So what happened? How do we fix it? Or is it something not worth being fixed?

I'd say it's a major problem given how the cost of housing, education and medical care have skyrocketed in the intervening decades. A straight forward fix would be a hike to the minimum wage but it would have to be big enough to potentially shock the economy.


Have wages seen the same stagnation in other countries in this time period or is this a uniquely American phenomenon?

 

[El_Machinae]

Let's first test your premise. What makes you think that wages have been stagnant?

Do we have some better graphs?
https://fred.stlouisfed.org/series/LES1252881600Q

 

[hobbsyoyo]

Let's first test your premise. What makes you think that wages have been stagnant?

Do we have some better graphs?
https://fred.stlouisfed.org/series/LES1252881600Q

Your graph shows exactly that trend. It has picked up a bit in the last ~5 years but otherwise yeah it was at the same level in 2015 as it was in 1979 and lower at many points in between. Even with the recent uptick, it has not been enough to make up for the intervening years. Moreover, the cost of living across several metrics has not been stagnant, which is a big problem. If COL hadn't risen so dramatically, this situation wouldn't be as big an issue.

 

[Synobun]

Looking at just median wage is a trap. The real trend you need to look at is wealth distribution. Even with the most forgiving interpretation of basic wages, even if you point at every marginal increase and go, "See, wages are rising!" you'll see a major issue if you look at how the wealth in our society is hoarded distributed.

That wages have grown is ultimately meaningless when you look at the amount of capital that exists. Productivity and generation of wealth has never been higher. The workers see marginal gains while those at the top hoard an incredible amount of wealth. That there exists a conglomerate of uber-rich sycophants who can buy politicians and propagandized sentiments is damning and makes any increase in base wages a joke.

 

[El_Machinae]

Your graph shows exactly that trend. It has picked up a bit in the last ~5 years but otherwise yeah it was at the same level in 2015 as it was in 1979 and lower at many points in between. Even with the recent uptick, it has not been enough to make up for the intervening years. Moreover, the cost of living across several metrics has not been stagnant, which is a big problem. If COL hadn't risen so dramatically, this situation wouldn't be as big an issue.

What is really missing is the cost of inputs on those Rising wages. We moved from a world of no student loans to a world of necessary student loans. And the pay back on those loans is effectively an automatic reduction in take-home wages. That won't be reflected in my graph. If wages have gone up $100 per week, but student loan repayment is $200 per week, then it's effectively both a wage reduction and a transfer of wealth upwards

 

[Narz]

We moved from a world of no student loans to a world of necessary student loans.

That's what they want you to think. What kind of start on adulthood is being $50-100k in the hole?

 

[Hrothbern]

What is really missing is the cost of inputs on those Rising wages. We moved from a world of no student loans to a world of necessary student loans. And the pay back on those loans is effectively an automatic reduction in take-home wages. That won't be reflected in my graph. If wages have gone up $100 per week, but student loan repayment is $200 per week, then it's effectively both a wage reduction and a transfer of wealth upwards

yes

also

If you calculate the change over time of real wages you need to adjust the actual wages with inflation.
But what definition of inflation is used ?
That starts already that inflation differs per income class
and can you really use yoy inflations when lifestyles have changed ?
When average household sizes have changed ?
When housing cost in proximity of jobs have changed ?

 

[amadeus]

That's what they want you to think. What kind of start on adulthood is being $50-100k in the hole?

Sort of like a mortgage, I suppose.

I don’t like the price of college nowadays but you are borrowing for increased income down the line as statistically college grads still outperform high school grads in total lifetime earnings.

I don’t wholly disagree with you in principle, just think it needs to be put in perspective.

 

[Birdjaguar]

There are a lot of things going on.

• 10 years of slow economic growth
• Growing economic inequality
• High student loans affecting millennials
• Housing costs going up in the important job expanding cities
• Low inflation rates for the 10 year span
• Low income wages growing in the past three years over inflation rate and rate of changes in healthcare costs
• Upper middle income wages growing in the last three years
• Lowest unemployment in recent memory, even U6 is down
• Percent of workforce employed (~64%) lower than in 2000 (~68%)

So are we better off now than when? What are we comparing? Who are we comparing and what is the yardstick we are using? Income? Net worth? Hours worked? Lifestyle?

 

[JPetroski]

That's what they want you to think. What kind of start on adulthood is being $50-100k in the hole?

You're right that it's what they want you to think. Bachelor's degrees can be had for about $20k, all-in. Maybe less.

 

[Kaitzilla]

That's what they want you to think. What kind of start on adulthood is being $50-100k in the hole?

Indeed.

That debt cannot be discharged with bankruptcy either.

It's a lot of fun watching 18 year-olds who have not experienced much of the world go all-in with their future these days.
https://www.nbcnews.com/news/us-news/student-loan-statistics-2019-n997836

Bad outcomes used to be recoverable from, but that isn't true when the numbers grow large enough.
https://www.elitedaily.com/p/i-cant...ns-its-ruining-my-life-relationships-18019707

 

[hobbsyoyo]

Are people being aggressive enough when it comes to changing jobs to get a pay raise? It seems that's the only guaranteed way to get a hefty raise these days.

 

[Marla_Singer]

I'd say it's a major problem given how the cost of housing, education and medical care have skyrocketed in the intervening decades.

Maybe that's the real problem.

Wages have been overall pretty stagnant in all Western countries, however, the real specificity of the US is how education and medical care costs exploded over there in comparison to other OECD countries. I would invite you to read this article about it:

Here’s the real reason health care costs so much more in the US

The U.S. is famous for over-spending on health care. The nation spent 17.8 percent of its GDP on health care in 2016. [...] Per capita, the U.S. spent $9,403. That’s nearly double what [other OECD countries] spent.

This finding offers a new explanation as to why America’s spending is so excessive. According to the researchers at the Harvard Chan School, what sets the U.S. apart may be inflated prices across the board. In the U.S., they point out, drugs are more expensive. Doctors get paid more. Hospital services and diagnostic tests cost more. And a lot more money goes to planning, regulating and managing medical services at the administrative level.

In other areas, despite conventional wisdom, there seems to be less discrepancy between the U.S. and other countries than commonly thought.

Read more:
https://www.cnbc.com/2018/03/22/the-real-reason-medical-care-costs-so-much-more-in-the-us.html

Americans actually spend less times at hospitals and visit less often physicians than Europeans, despite paying twice more for their health care. This leads to a pretty weird situations in which health spendings keep increasing in the US, whereas life expectancy is declining.

I'm pretty convinced we could make a similar case about education costs.

 

[innonimatu]

Indeed.

That debt cannot be discharged with bankruptcy either.

Living the 18th century american dream of the indentured servitude?

You (as in a majority in an election) can just vote to abolish it, as other totally stupid and offensive practices were abolished. Outlaw that debt. Make it dischargeable by bankruptcy, or simply make it disappear. Debt is an accounting and political fiction anyway.

There will be howling by people (creditors?) who think they'll be on the losing side, but so what?

 

[hobbsyoyo]

This leads to a pretty weird situations in which health spendings keep increasing in the US, whereas life expectancy is declining.

To be fair, that decrease in life expectancy is driven by an opioid epidemic and not a general collapse in healthcare for the average public. Addicts are dying at higher rates, driving the numbers down. Hopefully that gets contained and reversed soon and I'm in no way implying the situation is normal or good. Just that the decline in life expectancy is a bit more nuanced than it seems at first.

 

[Marla_Singer]

To be fair, that decrease in life expectancy is driven by an opioid epidemic and not a general collapse in healthcare for the average public. Addicts are dying at higher rates, driving the numbers down. Hopefully that gets contained and reversed soon and I'm in no way implying the situation is normal or good. Just that the decline in life expectancy is a bit more nuanced than it seems at first.

And how does that explain why medical care is twice more expensive in the US than in other developped countries?

You were complaining about your wage, maybe you should look at your expenditures.

 

[amadeus]

Americans actually spend less times at hospitals and visit less often physicians than Europeans, despite paying twice more for their health care. This leads to a pretty weird situations in which health spendings keep increasing in the US, whereas life expectancy is declining.

Rather than “flaws” in the system itself, I think high doctor pay and sedentary lifestyles are to blame for the high cost and statistical poor outcomes. But good luck getting those things to change in the U.S.

 

[Birdjaguar]

And how does that explain why medical care is twice more expensive in the US than in other developped countries?

You were complaining about your wage, maybe you should look at your expenditures.

5% of of patients account for 50% of US healthcare costs.This link is a pretty good explanation why.

Who Are the Super-Users?
Kominski breaks them down into two groups.

"The first group ... can be any of us in any given year, if we're hospitalized with a condition that requires more than one or two days in the hospital," he says. "But those are, in a sense, the easy ones. Those are acute events that people recover form in most cases. So, their spending [eventually] goes down to normal, more typical levels."

Think, for example, an emergency appendectomy, an accident that calls for an overnight hospital stay, or scheduled event like having a baby. These are separate, defined, often once-in-a-lifetime (births notwithstanding) occurrences.

It's the second group in the 5 percent that gobbles up so many health care dollars. They are the ones who need regular physician care, repeated and sometimes lengthy hospitalizations and high-cost pharmaceuticals. Think chronic diseases, like diabetes, heart disease or cancer.

These are the ones that strain health care safety nets like Medicaid and, in turn, drive up rates for the rest of Americans when insurance companies hike premiums. In 2012, the CDC estimated that half of all American adults had at least one chronic health condition.

Look at it this way: The bottom 50 percent of health care users in the U.S. spend an average of somewhere around $264 a year, says Neeraj Sood, the vice dean for research at the Sol Price School of Public Policy and the director of research at the Leonard D. Schaeffer Center for Health Policy & Economics at the University of Southern California.

Those top 5 percent? About $47,000 a year. The top 1 percent? Try $107,000 per person, per year.

"It is out of whack in the sense that if you look at other countries, what you'll find is it's true that there is a distribution [like the one in the U.S.] but ... in the U.S., the distribution of expenses is definitely more acute. The bottom 50 percent is basically healthy. But in the U.S., once you fall ill, the U.S. tends to do more high-tech stuff on consumers that are ill," says Sood.

For those with chronic illnesses, every doctor visit, every X-ray or MRI, every trip to a well-appointed emergency room, every pill costs (and often costs big). Things add up quickly. The government and the insurance companies pay. And then they want that money back.

So, the mostly healthy pay, too.

Opioids are only one part of the our decline in longevity. Mostly it is poor lifestyle habits plus drugs and alcohol.

After 2010, US life expectancy plateaued and in 2014 it began reversing, dropping for three consecutive years -- from 78.9 years in 2014, to 78.6 in 2017. This is despite the US spending the most on health care per capita than any other country in the world.

Of all age groups, adults 25 to 64 years old saw the largest increase in mortality rates -- 6% -- according to the study, published Tuesday in the medical journal JAMA.
The Ohio Valley, which includes West Virginia, Ohio, Indiana and Kentucky, as well as the northern New England area, including New Hampshire, Maine and Vermont, saw the largest relative increases in deaths, the study found.

Death rates climbing among young and middle-age US adults
The researchers looked at data from the US Mortality Database and the US Centers for Disease Control and Prevention's WONDER database.
Other studies to date have detected this negative trend, but this study went further and noted that problems like drug overdoses and suicides, that are shortening American life expectancy, have been building since the 1990s. Fatal drug overdoses for people in midlife, for example, increased 386.5% between 1999 and 2017, the study found.

For obesity, midlife mortality rates increased 114%. Deaths due to hypertension for this age group increased by 78.9%. Mortality rates linked to alcohol-related problems, such as chronic liver disease and cirrhosis, increased 40.6% overall during that same time period.

For people between the ages of 25 and 34, the rate of alcohol-related disease deaths increased by 157.6% from 1999 to 2017. Suicide rates increased by 38.3% for people ages 25 to 64, and by 55.9% for people ages 55 to 64.

While there are public health initiatives to address these issues, the negative trends in life expectancy are not likely to change any time soon, because the underlying drivers remain. For example, about 80% of adults don't meet physical activity guidelines, studies show, and the vast majority of American adults are overweight or obese -- some 71%, according to the CDC. People who are obese have a higher risk of cancer, diabetes, heart problems and chronic conditions that can cut a life short.

 

[El_Machinae]

There are a couple other things to consider. First off, has there been Global wage stagnation? Or is there some type of built-in phenomenon?

Secondly, wage is determined by demand. But productivity is determined by utility. So, a skill that quintuples your productivity will lead to a higher wage. But if 10 people have that skill, the wage will not rise. But the productivity did! Each of those 10 people has more skill than the counterfactual, and yet wages didn't rise.

I see this all the time in finance. The hotshot brokers, earning more than a million dollars per year, don't know how to use the printer. They would be willing to pay a premium for this service. But because there are 20 people in the office who know how to use a printer, a useful skill!, the brokers end up capturing all of the value of having functioning printers.

The solution isn't a less educated Society. And if that's where someone goes for the solution, they're incorrect. An educated base. Education that allow network economic benefit. But for some reason, we let all this benefit flow upwards. Free market economics doesn't have a solution for this disparity, except that eventually the rising tide pulls up all boats. The wage will eventually become what the cheapest person demands. Yay?

 

[Hrothbern]

There are a couple other things to consider. First off, has there been Global wage stagnation? Or is there some type of built-in phenomenon?

Secondly, wage is determined by demand. But productivity is determined by utility. So, a skill that quintuples your productivity will lead to a higher wage. But if 10 people have that skill, the wage will not rise. But the productivity did! Each of those 10 people has more skill than the counterfactual, and yet wages didn't rise.

I see this all the time in finance. The hotshot brokers, earning more than a million dollars per year, don't know how to use the printer. They would be willing to pay a premium for this service. But because there are 20 people in the office who know how to use a printer, a useful skill!, the brokers end up capturing all of the value of having functioning printers.

The solution isn't a less educated Society. And if that's where someone goes for the solution, they're incorrect. An educated base. Education that allow network economic benefit. But for some reason, we let all this benefit flow upwards. Free market economics doesn't have a solution for this disparity, except that eventually the rising tide pulls up all boats. The wage will eventually become what the cheapest person demands. Yay?

yes

I get later back with a longer post on this and other aspects
But key is where the benefits of productivity end up
and what is your yardstick

A portion of productivity increases ended up in decreasing the amount of hours worked
And for example with a TV
You can nicely have that TV in your yoy inflation calculation and say "a TV" has changed X in price and that contributes to Y in the inflation and that has Z effect in the real wage calculation.

But we do not get the same TV as back in 1960 or back in 2000, We get a whole lot of additional features.
Real wage tries to yardstick our purchasing power, but it does not really measure like for like what is delivered.
A TV with the features of 1960 will cost less than a nice meal in a restaurant
And every company tries ofc to add features to their products to counter the ratee of productivity increases in order to keep at least the same amount of "real turnover". Otherwise productivity increases would only lead to every company decreasing in size.