Are Stagnant Real Wages Here To Stay?

Whenever income inequality comes up in discussions, someone inevitably cite stagnant real wages since about the 1980’s (that is, wages adjusted for inflation are largely unchanged over the past 30+ years).  This certainly is correct.  But, when determining an employee’s compensation, wages are only one aspect of it.  There are also benefits (health care, paid leave, vacation time, etc).  Putting it mathematically:

TC = W+B

TC = Total Compensation

W = Wages

B = Benefits

Real total compensation has been rising.  Given that the total is rising and one aspect (wages) is stagnant, this would suggest benefits are increasing as a share of total compensation.  In fact, this has been happening.  US government data (as reported by the Kaiser Foundation) shows wages’ share is falling (see Figure 2).  The Heritage Foundation confirms this trend.

Looking at this data, it is likely real wages up to this point were stagnant because of increasing benefits.  So, what does that mean for real wages going forward?

I postulate that, as more and more benefits increase (and indeed, some become mandatory), we will likely see real wages remain stagnant, and possibly even decline.  Should my hypothesis be correct, it could have dire consequences for employee policy prescriptions: programs like Obamacare, or mandatory parental leave, could actually increase income inequality for workers.  These kinds of programs could actually harm workers by reducing their monetary take-home pay.

Stagnant real wages may be the new normal.

2 thoughts on “Are Stagnant Real Wages Here To Stay?

  1. Well if central banks (particularly The Fed) would stop fighting the boogie man of deflation then we all could reap the full rewards (instead of just some of them) of increasing productivity, and real wages would rise healthily as they should in our advancing economy.

    But instead they’ve managed to get people to buy into their nonsense that allows them to continue to debase our currencies and enrich the political crony class at our expense.

    Of course there’s more to it with govt meddling in all aspects of society, but central banks are the primary cancer.

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    • Onlooker

      You have that exactly right. Deflation is an imaginary threat cooked up by those who want to justify increasing the money supply. We should expect prices to drop overall as productivity increases and technology improves. We see just that in computers and electronics despite the efforts of the Fed to “stabilize prices” the notion of a deflationary spiral is more bogus tripe cooked up by Keynesians.

      By the way I’m a little confused by your spelling of the word “boogie” man. I thought this guy was the Boogie Man.

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