It is a study that might help us understand the rise of Donald Trump as a populist blue collar hero and, at the other extreme, the left-leaning Vermont senator Bernie Sanders in the upcoming presidential primaries. Not because ordinary workers found themselves stuck in a rut for 30 years when all around them enjoyed the party of the century.
The new data shows that many of them had much higher incomes to splash on homes and cars. Instead the anger comes from their gains being wiped out from the 2001 recession onwards. And the only response of George W Bush’s team and the Federal Reserve was to protect the rich with tax cuts and cheer workers with ultra low interest rates that, as we know, underpinned the sub-prime mortgage scandal.
Both Trump and Sanders appeal to people who blame the slide in their living standards over the last decade, at least in part, on a political elite that failed to understand their concerns.
Until recently, an examination of the labour market relied on the annual publication of average wages. That is how the story of flat wages for the many and super-returns for the few over such a long period has emerged. Each calculation of average wages is a snapshot of all the people in the workforce. Unfortunately, millions of people quit the labour market during the year and others join. It is not the same cohort, and not just at the outer margins.
Robert J Shapiro, a former economic adviser to Bill Clinton who now runs the Sonecon consultancy in Washington, grabbed the opportunity to look at the raw census data when the US statistical office published it a few years ago.
He tracked the median incomes of average households as they travelled through the decades, checking on the progress of men versus women, Hispanic people versus black and white people, college graduates and different age groups. The report presents us with a more nuanced picture of the workforce and how it has fared.
He found that the 1980s boom, which gained traction in the middle of the decade, boosted the wages of all but the oldest group of workers. So large, steady income gains characterised the average household whether they were headed by men or women, or by people with high school diplomas or college degrees, whatever their ethnicity.
As Shapiro said: “This evidence contradicts the narrative told by those who track the value of aggregate income from the 1970s to present the claim that most Americans have made little progress for decades.”
The momentum dissipated in the first Bush presidency between 1989 and 1993 and accelerated again in the Clinton years before running out of steam in the early 2000s
Then came the downturn. The second Bush era, under George W, was painful for almost all but twentysomething college graduates, who even survived the 2008 crash with barely a scratch, and was worst for those without a high school diploma. Shapiro says the least educated saw their incomes “devastated” after 2001.
“Across the three younger age-cohorts, the median income of households headed by people without high school diplomas fell an average of 1.9% per year as they aged through the 2002-2007 expansion; and over the entire period from 2002 to 2013, their median incomes fell by an average of 1.8% year as they aged,” the report says.
Between 2010 and 2013, households where the main earner had been aged 25 to 29 back in 1982 suffered even more if they quit education before going to high school. They lost 7.1% in income in each year as vast numbers either took a cut in pay, in hours or were made unemployed.
The rise and fall of the average workers’ wages documented in the report chimes with the business cycle and the trend in Europe, which followed a similar trajectory.