Where Have All the Wages Gone?

This study uses household survey data and other sources through June of 2006 to evaluate changes in employment, wages and composition of jobs in the United States and in California.

The key findings are:

1. Job growth was moderate in the United States as a whole and in California, but the employment growth has not returned to pre-recessionary levels. California added 172,000 jobs between July of 2005 and July 2006, and the nation added 1.7 million net jobs over this period. Both figures represent a slight decline from the previous year. In contrast, the nation added an average of 3 million jobs a year from 1996 to 2000, and California by itself was producing an average of 424,000 jobs during the boom years. The unemployment rate in both the United States and California declined to 4.8% in 2006, virtually matching the lowest level of unemployment in California in the last boom period (4.7% in February 2001).

2. Productivity and corporate profits have posted strong gains throughout the recovery. Productivity (output per labor hour) grew by 2.7% between 2005 and 2006, and by a total of 12.3% since the recovery began in 2002. Pre-tax corporate profits rose by 12.5% after adjusting for inflation between 2004 and 2005 (latest year available), and by a total of 38.8% since 2002.

3. The gap between productivity and compensation is at an all-time high since 1947 (the first year for which figures are available). Similarly, labor’s share of GDP is at an all-time low since the same year.

4. Average wages in the U.S. failed to keep up with inflation, reinforcing a trend of wage stagnation and decline. Real wages declined by 0.8% between 2005 and 2006, and are 0.7% lower in 2006 than in 2003 and 0.2% lower than in 2002, when the recovery began.

5. In California, real wages grew until 2003, but have been stagnant since then. Adjusted for inflation, the average wage rose by 0.4% between 2005 and 2006. The average real wage is 0.2% lower in 2006 than in 2003.

6. Wage inequality is growing. Between 2003 and 2006, real wages for those in the bottom third of the U.S. workforce declined by a total of 2.4%, while wages of those in the top third posted a small gain of 0.1%. Those in the middle saw wages fall by 1.3%. Similarly, real wages declined by 1.2% for the bottom third and rose by 0.6% for the top third of the distribution in California, while the middle third experienced a 1.1% decline in wages.

7. Young workers, male workers, and those without a college degree lost the most ground in wages. But even college-educated employees saw a real wage decline in the United States as a whole. Workers with a B.A. saw their real wages decline by 0.9% over the past year and by 0.6% since 2003. In California, workers with a college degree posted stronger wage gains than other groups—3.2% over the past year and a total 0.5% increase since 2003.

8. Nationally, workers experienced the sharpest wage declines in Personal/Laundry Services, Administrative Support Services, and Waste Management Services. In California, Transportation/Warehousing, and Personal/Laundry Services and Social Services led the list for wage declines. Over the past 3 years, these industries posted real wage declines of over 4% nationally, and over 6% in California.

9. In the United States overall, the biggest contributors to the decline in average wage were blue collar construction jobs, sales jobs in retail, and blue collar jobs in transportation and warehousing. By and large, all three job types contributed to the declining average wage primarily through falling wages within job categories (73% of the effect), as opposed to a growth in low-wage jobs (27% of the effect).

10. In California, the biggest contributors to the declining average wage were sales jobs in retail, blue collar jobs in transportation and warehousing, and professional jobs in health services. Again, the contribution was overwhelmingly through declining wages within jobs (85%), as opposed to a compositional change (15%).