President Ronald Reagan once asked, “Are you better off now than you were four years ago?” Today, one might ask, “Is your annual salary better off in this economic recovery than in previous recoveries?” Aviva Aron-Dine and Isaac Shapiro of the Center on Budget and Policy Priorities at cbpp.org recently analyzed salary information from the U.S. Commerce Department and concluded that wages and salaries have increased at a 1.7% average annual rate (adjusting for inflation) during the current economic recovery. They compared this salary information to previous economic recoveries (post-World War II) when workers’ wages and salaries increased at an average annual rate of 3.7%.
Aron-Dine and Shapiro also compared this salary information to corporate profits. During the present economic recovery, they found that profits for corporations have risen at an average annual rate of 13.7%, higher than previous economic recoveries (post-World War II) when corporations’ profits had an average annual growth rate of 7.9%. They conclude that “the share of national income captured by corporate profits… is at its highest level since 1950,” while “the share of national income going to wages and salaries remains at the lowest level on record (going back to 1929).”
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Shocking Salary Information
In their sobering painting of salary comparison, Aron-Dine and Shapiro conclude that wages and salaries received a small share of national income during the current recovery – which began in the winter of 2001. They state, “31 percent of the overall increase in national income since the end of 2001 has gone to increases in workers’ pay, a smaller fraction than in any other recovery since World War II.” On the flip side, they note that “corporate profits have captured a larger share of the income growth in a recovery — 50 percent of it.”
For those who might say, “If you don’t like it, move to China,” that might not be such a bad idea. In the Far East, the trickling seems to be rather heavy as China’s annual salary increases are reportedly 7.9% (according to Recruiting in China at blog.dacare-group.com). If we do a salary comparison to Serbia, their average salary growth dwarfs ours at 21% (as reported by b92.net). Of course, we don’t know exactly what 28,267 Serbian dinars would buy in America.
Salary Comparison and Total Employee Compensation
What’s the cause for this slow wage growth? According to one of President Bush’s economic advisors, Allan Hubbard, “Employers are spending more money on health care, and that’s robbing people of wage increases.” However, Aron-Dine and Shapiro argue that if employer contributions for health and pensions actually affected wage and annual salary growth, then total employee compensation “would have performed about as well in the current recovery period as in past recoveries. It has not done so.” They state, “Total employee compensation lags far behind past generations during economic recoveries.”
Side note: when we talk about “Total Compensation” at PayScale, we usually mean “Total Cash Compensation”, and explicitly exclude contributions to pension funds and health insurance by the employer. The Commerce Department’s Bureau of Economic Analysis (BEA) explicitly includes health insurance and pension fund contributions.
In their analysis of salary information, Aron-Dine and Shapiro claim that “the average annual growth rate of total employee compensation during the current recovery has been 2.4%, after adjusting for inflation… well below the 4.0% average growth rate for previous post-World War II recoveries. The share of national income going to total employee compensation in the first three quarters of 2006 — 64% — is at its lowest level since 1968, except for 1997.”
Annual Salary: Low-Income vs. High-Income Households
In their findings, Aron-Dine and Shapiro have bad news for working-age households: “According to Census data, median income among working-age households in 2005 — four years into the recovery — also was lower than during the recession, after adjusting for inflation. Median income among working-age households fell in each year from 2001 through 2005.”
They contrast this with high-income households, which have seen an increase in income from the current economic recovery. They cite “recent data from economists Thomas Piketty and Emanuel Saez show that income concentration jumped dramatically in 2004, and that the share of national income going to the top one percent of households was larger in 2004 than in any year since 1929, except for 1999 and 2000.”
Salary Info and Stocks
They say that the financial jump for high-income households occurred because “the benefits of rapid growth in corporate profits tend to accrue largely to high-income households, since they hold a highly disproportionate share of corporate stock” (which leads us back to increased corporate profits during an economic recovery). They add that, “middle-and lower-income households, typically, are much more heavily dependent on wage and salary income.”
Aron-Dine and Shapiro do end on a high note, believe it or not. They say, “In the second half of 2006, average hourly wages, adjusted for inflation, have increased, according to Labor Department measures. The hope is that these increases indicate a change of course and that working households will begin to see stronger income gains. As the Commerce data show, however, recent developments have not been nearly enough to reverse the effects of the trends of the past few years.”
Did your salary increase in 2006? Find out with our salary calculator.
Dr. Al Lee