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State of Working America

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Contact: Nan Gibson (202) 331-5546 · Tom Kiley (202) 331-5540


Median hourly wages rose 7.3% between 1995-99; Disparities in wage and income gains among the different economic classes continued to rise throughout 1990s

Washington, D.C. – Persistent low unemployment, accelerating labor productivity, and a rising minimum wage have led to broad-based wage gains for U.S. workers at all wage levels since 1995. However, the typical American family is working more hours, is taking on historically high levels of household debt that far outpace small stock market gains, and often fails to receive adequate health care and pension coverage from their employer, according to a new study released this Labor Day by the Economic Policy Institute (EPI).

The State of Working America 2000-2001,by economists Lawrence Mishel, Jared Bernstein and John Schmitt, provides a comprehensive study of the changing living standards of working Americans. The 454-page book presents new data on family incomes, wages, wealth, jobs, unemployment, and poverty, as well as state-by-state, regional and international comparisons of key indicators.

For most workers, the early part of the economic expansion that began in 1991 was disappointing: incomes declined while poverty and job insecurity increased during what came to be called the “jobless” recovery. However, since 1995 persistent low unemployment has shifted the economy into a much higher gear. The tight labor market has been accompanied by a significant turnaround from widespread wage decline, labor productivity has accelerated (up 2.5% per year since 1995 compared to an annual rise of 1.3% from 1972-95), and the shape of wage inequality has changed markedly.

The study places the improvements in wage and income growth over the 1995-99 period in historical context to determine if the U.S. economy has entered a “new economy” that will generate continued prosperity for U.S. workers and families. The authors find that the spike in investments in information technology associated with the so-called “new economy” has led to higher productivity, but has not contributed significantly to job growth, nor has the high-tech sector set the pace for any meaningful wage gains for workers in other sectors. Technological change was also not found to be a driving factor in the growth of wage inequality in either the 1980s or 1990s.

The report’s key findings include:

  • Income inequality continued to grow in the late 1990s, though at a slower rate than earlier in the decade. From 1995-98, real incomes of low-income families grew 1.9% each year, trailing the growth rate for families in the middle (2.3%) and the top (3.2%).
  • The structure of income inequality remained relatively unchanged during the 1990s, even though the shape of wage inequality shifted. Strong wage gains at the bottom allowed low-wage earners and the poor to close the gap with the middle, while the top continued to pull away from the middle during this period.
  • Average hourly wages grew 2.6% a year between 1995 and 1999, far better than the 0.6% annual growth during the 1989-95 period. However, because the value of employer-paid health insurance and pensions fell, overall compensation growth of 1.9% was less than the 2.6% rate for wage growth for the same period.
  • In 1998, 62.9% of private sector workers had employer-provided health insurance, a slightly lower rate of coverage than in 1989 (63.1%), and less than half (49.2%) of private sector workers had employer-provided pension plans.
  • While a middle-class, married-couple family’s income grew 9.2% from 1989 to 1998, a substantial part of this growth reflected an increase in family work hours, up 246 hours to 3,885 total, or about six extra full-time weeks a year since 1989. African American middle-income families logged even more hours, working an average of 4,278 hours per year – almost 500 hours per year more than white families.
  • The top 1% of stock owners hold almost half (47.7%) of all stocks, while the bottom 80% own just 4.1% of total stock holdings. Stock market gains were similarly concentrated among top stock owners, with nearly 35% of the gains going to the wealthiest 1% of households from 1989-98.
  • The real wage of the median CEO rose 62.7% during 1989-99, helping the typical CEO to earn 107 times more than the typical worker. This ratio of CEO to worker pay was almost double the ratio of 56 in 1989.
  • In 1998, more than one in four African-Americans (26.1%) and Hispanics (25.6%) lived in poverty, much higher than the rate for whites (10.5%). However, overall poverty rates fell more for blacks (3.2 percentage points) and Hispanics (4.7 percentage points) in the 1990s than for whites (0.7 percentage points).
  • Entry-level wages grew substantially between 1995 and 1999. Real wages of young high school graduates increased 6.3% for men and 6.2% for women. Among young college graduates, real wages rose 14.9% for men and 9.4% for women.
  • The wage growth of typical workers has not kept pace with productivity due in large part to a growing share of corporate income being paid to owners of capital, with a lower share paid out as compensation. Without this ratcheting-up of profitability, average compensation could have been 4.3% higher in 1999.

“Persistent low unemployment and increases in the minimum wage have helped workers at the bottom recover from 15 years of wage stagnation and decline,” says economist Lawrence Mishel. “However, some alarming trends persist as wage and income inequality remain high, families are working more hours than ever and are saddled with the highest levels of debt in history.”

“Investment in computerization has helped lift productivity growth, which is a most welcome change,” notes Jared Bernstein. “But unless the continuing problems faced by many working families – inequality, poverty, and job quality – are addressed by public policy, the ‘new economy’ may end up looking quite similar to the old one.”

“The booming stock market has allowed a small number of wealthy individuals to ride the tide to even greater wealth, but data on stock ownership shows that stocks, in practice, provide little or no financial gain to the vast majority of U.S. households,” says John Schmitt.

Published biennially, The State of Working America has become a respected source for the latest available data on changes in the economic well-being of working Americans, as well as an overview of economic trends since World War II. The latest edition contains substantial original research, including new analyses of data collected by the Bureau of Labor Statistics and Census Bureau, as well as other government and academic sources.

The following is a summary of selected chapters characteriz
ing the economic realities facing American workers over the past few years.

Wages | Workers at all levels see sharp wage gains since 1995

The wages of workers at all levels grew rapidly between 1995 and 1999. Increases in the minimum wage, combined with sustained low unemployment of the late 1990s, led to disproportionately higher wages for workers at the bottom.

  • The median wage for all workers grew 7.3% during 1995-99. For male workers, the median rose 5.5% and for female workers, it rose 5.8%. For the 1989-99 period, median wages for all workers rose a more modest 2.4%, while median male wages were down 1.2% and median female wages rose 4.0%.
  • Real wages for workers at the bottom (10th percentile) rose 9.3% from 1995-99, barely eclipsing the rise in wages for high-wage earners (95th percentile), which jumped 8.5% during the same period. However, from 1979-99 real hourly wages for high-wage earners increased 17.6%, but wages for low-wage earners fell 9.3%
  • Between 1995 and 1999, real wages grew across almost all race and ethnic groups. Median male wages grew 6.2% for whites, 8.1% for blacks, and 11.8% for Asians. Median male Hispanic wages, however, fell 3.5% over the same period. Among women, median wages grew 6.5% for whites, 5.5% for blacks, 8.2% for Hispanics, and 9.1% for Asians.

Jobs | Tight labor market helps workers in middle and bottom catch-up

The current period of sustained low unemployment is unprecedented in recent economic history. At no other time since 1970 has the unemployment rate remained below 5.5% for more than two consecutive years.

  • In 1999, unemployment for whites was 3.7%, less than half the rate for blacks (8.0%) and well below the rate for Hispanics (6.4%). However, between 1989-99 the unemployment situation improved more for blacks and Hispanics (down 3.4 and 1.6 percentage points respectively), than for whites (down 0.8 percentage points).
  • One welcome feature of the expansion of the late 1990s is the apparent reversal in the long-term trend away from full-time jobs. Between 1995 and 1999, the share of regular full-time employment rose from 73.6% to 75.1% of all jobs.
  • The quality of jobs improved in the latter half of the 1990s due to sustained low unemployment. The share of “involuntary” part-timers – working part time but wanting a full-time job – dropped to 2.6% in 1999, down from 3.7% in 1995.

Wealth | For typical household, rising debt, not rising stock market was big story of 1990s

Despite the perception that the stock market run-up of the 1990s improved the wealth picture for many Americans, less than half of households hold stock in any form, including mutual funds and 401(k)-style pension plans. The same data reveal that 64% of households have stock holdings worth $5,000 or less.

  • The total wealth of the typical American household rose only marginally during the 1990s. The net worth of the typical household rose about $2,200 in the 1990s – from $58,800 in 1989 to $61,000 in 1998. Also, the wealthiest 1% of households control about 38% of national wealth, while the bottom 80% control only 17%.
  • From 1989 to 1998 the value of stock holdings of the typical household grew by $5,500 and the value of non-stock assets grew by $8,500. Meanwhile, typical household debt increased $11,800.
  • While households in the middle of the wealth distribution captured 2.8% of the total growth in stock market holdings between 1989 and 1998, these same families accounted for 38.8% of the unprecedented rise in household debt.

Family Income | Income inequality slows, but hours worked by families accelerates

Despite strong growth in inflation-adjusted incomes in the last half of the 1990s, real income growth over the entire decade was slow and unequally distributed. Furthermore, the increase in the number of hours that families worked each year was the primary factor contributing to the income growth of the last decade.

  • Between 1989 and 1998, the inflation-adjusted income of the median family grew just 0.4% per year – identical to the disappointing average growth rate of the 1980s. Even income gains achieved by the median family in the late 1990s – up 2.5% a year – fell short of the average rate during the first 30 years of the postwar period.
  • The greatest increase in work time has been among middle-class families, whose weeks worked grew by the equivalent of a person working over one-third of a year (19 weeks) more in 1998 than they were in 1969. The growth in weeks worked among higher income households, by contrast, was only half as much.
  • The average income of black families grew 1.1% per year in the 1990s, more than double the rate for whites. But during 1995-98, growth in black family earnings (1.9% per year) trailed whites (2.4%). For Hispanics, family incomes fell on average 0.4% per year during the 1990s, but grew 4.1% from 1995-98.

Poverty | Poverty rate remains stubbornly high despite brighter wage picture

Despite the robust economy that prevailed in the second half of the 1990s, the national poverty rate in 1998 was 12.7%, just one-tenth of a percentage point less than in 1989 and a full percentage point higher than in 1979.

  • Due to both the tight labor market and welfare reform, poor families in the 1990s have significantly increased their work effort. In 1998, the average poor family with children worked 1,213 hours, 13% above the 1989 level.
  • Child poverty remains an intractable problem for the U.S. In 1998, 18.9% of American children – almost one in five – lived in poverty. While this rate is lower than in 1989 (19.6%), it remains well above the 16.4% rate for 1979.

Lawrence Mishel is Vice President at EPI and co-author of all previous editions of The State of Working America. Mishel holds a Ph.D. in economics from the University of Wisconsin, Madison.

Jared Bernstein is a labor economist at EPI and co-author of four previous editions of The State of Working America. He holds a Ph.D. in social welfare from Columbia University.

John Schmitt is a labor economist at EPI and co-author of two previous versions of The State of Working America. He has a Ph.D. in economics from the London School of Economics.

The Economic Policy Institute is a nonprofit, non-partisan economic think tank founded in 1986.

Advance galleys of The State of Working America 2000-2001 are being distributed to the news media for release on September 3, 2000. The book will be published by Cornell University Press (January 2001).

To order copies of The State of Working America 2000-2001, contact EPI at 1-800-EPI-4844. The executive summary and introduction to this report will be available online September 3rd by visiting EPI’s World Wide Web site at