College Graduates' Wages Drop 5.2% Since 2000

Wage stagnation, long the bane of blue-collar workers, is now hitting people with bachelor's degrees for the first time in 30 years. Earnings for workers with four-year degrees fell 5.2 percent between 2000 and 2004 when adjusted for inflation, according to White House economists.

It is a setback for workers, and it may explain why surveys show that many Americans think President Bush has not managed the economy well.

Not since the 1970s have workers with bachelor's degrees seen a prolonged slump. These workers did well during the last period of growth, with average wages rising 12 percent from 1995 to 2000, according to an analysis by the Economic Policy Institute.

According to the National Bureau of Economic Analysis, this expansion started in November 2001 when according to the Bureau of Labor Statistic the average hourly pay of non-supervisory workers was $14.70. This figure was $16.62 in May of 2006 for an increase of 13.06%. Over the same period, the inflation gage according to the Bureau of Labor Statistics increased from 177.4 to 202.5, or an increase of 14.15%. Therefore, wages for non-supervisory employees have decreased a little over 1% since this expansion began.


However, the unemployment rate dropped below 5% in December 2005, signaling "full employment". Has the decrease in labor supply increased wages? No. In December 2005 the average hourly wage of non-supervisory employees was $16.35. In May that number was $16.62 for an increase of 1.65%. Over the same period, the overall inflation measure increased from 196.8 to 202.5 or an increase of 2.89%. Therefore, since the economy hit "full employment" wages have decreased 1.25%.


Two sources confirm this information.  The Federal Reserve's Survey of Consumer Finances 2001-2004 and the Census Bureau's median wage statistics. The Census Bureau documents that national median income has dropped from $45,000 in 2000 to a little under $44,500 in 2004.


This problem is effecting a large percentage of the workforce:


Although earning a bachelor's degree is still worth hundreds of thousands of dollars in lifetime earnings, on average, the recent wage slump has affected a substantial part of the workforce. About 30 million Americans ages 20 to 59 have a four-year degree and no advanced degree, according to the National Center for Education Statistics.



White House economists did not lay out wage trends for people with advanced degrees. But other studies have found that wages for those workers were flat between 2000 and 2004, when adjusted for inflation, while confirming the decline for people with undergraduate degrees.


So, what's causing this?:


Off-shoring, which has shifted manufacturing and call-center jobs to Mexico and India, is increasingly affecting the white-collar sectors of engineering and software design. Companies have continued their long effort to replace salaried positions with low-paid, nonsalaried jobs, including part-time and freelance positions without benefits.


A recent study by the New Democrat Network adds:


Globalization is changing two of the most basic economic dynamics in our economy.  First, it weakens the long-standing connection between increases in the productivity of American workers and the wages they earn. Since 2001, labor productivity in the United States has grown, on average, more than 3 percent a year.  That's the best performance in decades.  Yet, despite five years of strong productivity growth, wages are stuck. Even when we include the value of health insurance premiums and pension contributions, the compensation of an average American worker has increased little, for all the economy's productivity improvements.


Increases in productivity are theoretically supposed to translate into higher wages. The intuitive way to think about this concept is a simple bonus for getting more work done.  As a company produces more with the same amount of resources, it raises wages as an incentive and reward.  However, as productivity has increased during this expansion wages have not followed suit.


Second, globalization has measurably weakened the relationship between growth and job creation.  The first evidence came in the 2001 recession, when job losses relative to the actual decline in economic growth were six times greater than in previous postwar recessions.  Five years into the current expansion, job creation is still running at half the rate of the preceding recovery.  Despite this historic slowdown in job creation, the official U.S. unemployment rate remains low - but only because the number of working age people looking for jobs has also declined, even as the economy has grown.


Despite Bush's continual touting of recent job numbers, this expansion's job creation rate is the lowest of any recovery in the last 40 years. NDN is arguing that US job growth is occurring in other countries as well; that US companies are instead hiring employees in other countries who in turn provide goods and services to the US.


The wage/globalization issue is incredibly complex.  However, it is now hitting people who are solidly middle class.  Maybe Democrats could start to reach out to these people?  Sorry - a fleeting hope emerges.

Tags: Economy (all tags)

Comments

1 Comment

Re: College Graduates' Wages Drop 5.2% Since 2000

My peers and I have been living this problem since graduation (I'm class of 2001). We are a generation of workers forced to work "permalance", never offered  any way to save for retirement etc (my current job is the wonderful, saved my life, exception).

DMI's intern who is in grad school wrote about this story from a personal perspective but also found some  releated research.

http://www.dmiblog.net/archives/2006/07/ one_more_reason_to_stay_in_sch.html

I really hope people continue to talk about this issue. Tamara Draut has done some great writing about this in her book "Strapped".

by DMIer 2006-07-26 07:40AM | 0 recs

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