The story of America was always a story of progress.
Between 1873 and 1973 the wage earned by the average working American increased by more than 600%. Year after year, things got better and better for all Americans. There were short recessions that temporarily threw people out of work, and one Great Depression in the 1930s in which wages fell 10%, but for the most part living standards changed in only one direction: up. Even the Great Depression lasted just ten years.
Today, things are different.
Since 1973 the wage earned by the average working American man has declined by 7.5%. Wages for the average woman have increased, but only because many more women work today than did in 1973. For women working in the same job (comparing teachers today to teachers then, retail workers today to retail workers then, etc,) there have been no wage increases for women either. American families only feel richer than in 1973 because now they usually have two wage-earners, not one.
That’s not to say that the economy hasn’t grown. With a recession raging in America for the past three years, it’s easy to forget just how successful the American economy has been over the years. Total national income per person today is about twice as high as in 1973. The money is there. It just doesn’t filter down to ordinary Americans like it used to.
How is it possible that the average job pays less than it did in 1973 (adjusted for inflation) when the economy has doubled? The answer is income inequality. Economists usually focus on total income levels for the country as a whole while sociologists usually focus on the distribution of income by social class. Since 1973 total income has grown, but the distribution of income by social class has changed dramatically.
Since 1973 poor and working class Americans have seem massive declines in income. The minimum wage in 1973, adjusted for inflation, would be equal to $8.14 per hour today. Since overall per person income in America has doubled since 1973, an equivalent wage today would be $16.28 per hour. The fact that the minimum wage instead is just $7.25 per hour means that poor and working class Americans have fallen behind relative to other Americans.
Wages for middle-income Americans (median wages) are about the same as in 1973 (or slightly less). Again, if wages for middle-income Americans had risen at the same rate as income overall, middle-income Americans should be earning twice as much as middle-income Americans did in 1973. In other words, you should be doing twice as well as your parents. If you and your parents have roughly average incomes, you’re probably making the same as they did or a little less.
It’s mainly gone to two places. Wages for top professionals and executives — people like investment bankers, corporate lawyers, and company chief executive officers (CEOs) — have increased dramatically. There are no good statistics for these small groups, but most sources estimate that CEO pay has risen by 800% or more over the past forty years. The highest-paid employees in America are very well-paid indeed.
The second place all the money has gone is to company profits. American corporations and proprietors earn 140% more in profits today than they did in 1973. In fact, American corporations recorded record profits in 2010 — in the midst of serious recession and unemployment for everyone else. The American economy as a whole is doing just fine. It’s the distribution of rewards in that economy that is all askew.
You may or may not be worse off than your parents were at your age. For the vast majority of people, however, if they are better off it’s not by much. You should be much better off than your parents were. After all, your parents were incredibly better off than your grandparents were. Life should be getting easier for each generation. For the first 200 years of American history, it was. Today’s problems go back only 40 years. America is a democracy, and if Americans want to change the distribution of income we can. It’s up to us.