Gender, Race, and Class Bias in US Wage Growth

David Brooks imagines he was invited to the Democratic Party. But the Party is at risk of taking left-extremist positions and driving away people like him:

The party is moving toward all sorts of positions that drive away moderates and make it more likely the nominee will be unelectable.

The absurdity of the enterprise is revealed when he disparages the Party’s discourse on the economy.

The economy is completely broken. It only benefits a tiny sliver. Yet in a CNN poll, 71 percent of Americans say that the economy is very or somewhat good. We’re in the longest recovery in American history and the benefits are finally beginning to flow to those who need them most. Overall wages are rising by 3.5 percent, and wages for those in the lowest pay quartile are rising by well over 4 percent, the highest of all groups.

3.5-4.0 percent sure looks like decent wage growth. But is there any reality behind these dandy numbers thrown around on the pages of the New York Times?

It is true that aggregate wages have grown at roughly this rate over the past few years in nominal terms. Even at this resolution we can see that recent growth falls short of precrisis growth rates; particularly the late-1990s. In 1997-2000, aggregate nominal wages grew at 5.0 percent per annum. Even the mid-2000s were better than the current cycle. They grew at 4.0 percent in 2005-2008. In 2009-2014, the rate was only 2.2 percent. Since 2015, aggregate nominal wages have growth at 3.3 percent. So not so dandy after all. (Except where noted, all the data in this post is from the Atlanta Fed.)


In real terms, however, things look different. The decent 4-percent rate of the mid-2000s now looks much weaker. Real wages may not have been growing as fast as the late-1990s, but at least they seem to be growing faster than the mid-2000s.


But the aggregate numbers hide an insidious reality. The Democratic Left seems convinced that wage growth is biased by race and gender. That’s incorrect. There is no racial bias. The wage growth of non-White workers is basically the wage growth of White workers plus a noise term centered at zero:


Similarly, there is no gender bias in wage growth. Women’s wages have grown at 3.5 percent and men’s at 3.6 percent since 1997. That’s within the margin of error. And although women’s wages lagged behind early in this cycle, the difference was small and vanished after 2016.


So there is no bias by race and gender. But, as I said, the aggregate numbers do hide an insidious reality. Wage growth has been systematically biased by class. We can recover this bias by decomposing nominal wage growth by any number of class signifiers.

Wages of high-skilled workers have grown much faster than low-skilled workers. Since 1997, in a tripartite decomposition for low, mid and high skill jobs, nominal wages have grown at 2.9, 3.4, and 4.0 percent. Upper class wages have grown 35 percent faster than working class wages.


Similar results may be obtained from education categories. Whereas college-educated workers have seen their wages grow at 3.9 percent since 1997, those with high school or less have seen their nominal wages go up by only 3.4 percent.


For an accurate picture of the economic situation of everyday Americans, we should be looking at real wages of blue collar workers. Here we look at the growth rate of the ratio between average hourly earnings of production and nonsupervisory employees and sticky price index. The former is obtained from the BLS and the latter is a slow-moving measure of purchasing power published by the Atlanta Fed.


By this measure real wages have grown at only 0.5 percent per annum since 1997. Since 2010, they have grown at only 0.26 percent. Only since last year, after the Unemployment Rate fell below 4 percent, has wage growth accelerated. Even so, wages have only grown at 0.6 percent per annum in 2018-2019. And now we’re already looking at the next recession. Even the Fed now expects to be cutting rates in 2020.

So, US wage growth has not been biased against women and people of color. But it has been systematically biased against the working class. The Democratic Party’s agenda should reflect this reality facing everyday Americans. And if David Brooks doesn’t feel invited to the party, so be it. Perhaps he can find solace in his six-figure salary.

Postscript. Perhaps a better representation of growth in real blue collar wages is to display the nominal numbers and the purchasing power index together. The gains in 2010-2012 are revealed to be driven entirely by inflation falling faster than nominal wage growth. Since 1997, real blue collar wages have only growth at a measly 0.5 percent per year; since 2010, at an even more niggardly 0.3 percent. Only in the past 17 months, after the Unemployment Rate fell below 4 percent, have they grown at the rate of 0.7 percent. No matter how you slice and dice it, the reality of working class wage growth is sobering.


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