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A rising tide does not lift all boats

The bottom half of American workers had a tough time in 2014, but far up the wage ladder, things got better

October 16, 2015 2:00AM ET

More Americans had good-paying jobs in 2014, but pay grew only slightly when inflation is taken into account, a government report revealed Thursday.

The 2014 wage report by the Social Security Administration (SSA) provides the latest evidence that while the economy is adding jobs, the overwhelming majority of individual workers are not benefiting much from rising wages. Other data show, however, that corporate profits are soaring.

Jobs and wages

The job news is good. A record 158.2 million people had at least some paid work last year, up 2.4 million workers from 2013. America has had a record 67 months of private sector job growth under Barack Obama’s administration. However, the number of Americans working is still about 4 million jobs short of where it would be with full recovery from the Great Recession.

Overall, wages per American in 2014 rose by $927, or 4.4 percent, my analysis of the new SSA data shows. Wages per capita rose because the number of jobs increased faster than the population and nearly all the added jobs paid more than $50,000, putting those workers in the top quarter of wage earners.

While more jobs and better wages come as good news for highly paid workers, the picture is less rosy lower on the wage ladder. One of the best ways to measure wages is comparing the mean (average) with the median (half make more, half less). When the average grows faster than the median, that shows that the top half of workers is pulling away from the bottom half, adding to America’s extreme and worsening inequality.

The median wage rose $366 in real terms last year, to $28,851. That is a 1.3 percent increase on top of inflation compared with 2013. Still, the median wage remains stuck at about the level of 1999, when it was $28,565.

By contrast, the average wage grew more, up 1.9 percent, to $44,569. That surpassed the old record of $44,256 in 2007, though not by enough that most workers would feel any difference in their wallets. The increase amounts to just $6 per week before taxes.

However, even that less than 1 percent real gross pay increase shows that six years after the Wall Street meltdown and bailout by the federal government, workers on average are finally ahead of 2007, the year before the Great Recession.

A closer look at the numbers

The annual wage report provides the best quality and most detailed data on jobs and compensation because it adds up, to the penny, every W-2 wage report issued by employers. 

The SSA measures pay subject to the Medicare tax, a flat 1.45 percent levy that applies to all compensation for services. While some fringe benefits, such as premiums for large life insurance policies, are subject to the Medicare tax, those amounts are insignificant against cash wages. That means the SSA data is as close as we get to a pure report on gross cash wages.

The widening gap in pay matters because it costs both taxpayers in the form of services and subsidies to employers and the nation in terms of health, shorter life spans and, in the long run, social stability.

The agency breaks the wage data into 60 levels of compensation, from under $5,000 to more than $50 million. Other government agencies, including the IRS and the Census Bureau, rely on this data for their reports. This data enables us to take a careful look along the income ladder, from bottom to top.

The latest data show a worsening situation for the 31 percent of workers making less than $15,000 per year, nearly all of whom work part time or seasonally. Their numbers shrank by more than 613,000, to 48.8 million people. Their average annual gross pay slipped by almost a buck a week, to $6,211.

Having fewer low-paid workers would be good news if it meant people moved up. The next category is jobs paying $15,000 to $30,000, most of which are full time. Sadly, the data show that workers in that category increased by only 209,000, offsetting about a third of the loss of lower-paid jobs. Its not likely many leaped into higher categories in one year.

Moving to the top half of earners, those making more than $30,000, the number of jobs in that group grew last year, but nearly all the growth was in jobs paying more than $50,000. In addition, average top half wages fell, in most categories by about 1.5 percent after adjusting for inflation. (This can occur when workers move up from the top of one category to the lowest level of the next category.) In fact, the only average increases in pay, adjusted for inflation, were for jobs paying $1 million to $50 million.

One in four jobs paid more than $50,000. Significantly, the number of such jobs increased by larger factors as wage levels increased. This shows the increasing importance of job skills, especially very sophisticated skills that produce profits for employers.

The number of jobs paying $30,000 to $50,000 increased 1.7 percent. Jobs paying $50,000 to $75,000 rose by 3.7 percent. Jobs paying $250,000 to $1 million increased 9.5 percent. Those paying $1 million to $50 million increased 15.4 percent. And the number of jobs above that stratospheric level grew by 22 percent, from 110 to 134 lucky duckies. But average gross pay for them fell by a fourth, to $86.3 million. Pay at these levels is heavily influenced by cashouts to retiring executives who typically collect both deferred pay and gold — nay, platinum — handshakes.

Widening gap

The widening gap in pay matters because it costs both taxpayers in the form of services and subsidies to employers and the nation in terms of health, shorter life spans and, in the long run, social stability.

Both parties talk about jobs, but they have failed for years to work together to foster the creation of more of them.

If 4 million jobs that in a normal economic recovery would have been created actually existed, America would enjoy immense benefits. It would mean less human misery, with less demand for food stamps and other government benefits, more investment and more tax revenue. More jobs would also put pressure on employers at all levels to raise wages, which means a better standard of living, instead of our slow, steady decline, which is a major reason so many Americans are deeply in debt.

Government is the solution to our weak economy and lack of jobs. We’ve tried tax cuts for more than 34 years. They have not worked, except to enrich the few at the expense of the many. What we need is a government that invests in our future, especially through more spending on scientific research, education and infrastructure, the building blocks for prosperity through employment. 

David Cay Johnston, an investigative reporter who won a Pulitzer Prize while at The New York Times, teaches business, tax and property law of the ancient world at the Syracuse University College of Law. He is the best-selling author of “Perfectly Legal,” “Free Lunch” and “The Fine Print” and the editor of the new anthology “Divided: The Perils of Our Growing Inequality.”

The views expressed in this article are the author's own and do not necessarily reflect Al Jazeera America's editorial policy.

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