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Economy won't improve until wages do too

Aug 29, 2013 - By The Philadelphia Inquirer

Do you feel like you're working harder than ever, but your pay isn't keeping up? That's probably because you are -- and it's not.

A new study by the Economic Policy Institute shows that while the productivity of the average American worker increased nearly 75 percent between 1979 and 2012, his real income during that period grew only 5 percent.

The New York Times interviewed a cashier at a KFC in Manhattan who, after eight years on the job, earns only $7.75 an hour. She hasn't had a raise since 2007. Of course, that's better than being among the millions who faced wage cuts or layoffs.

A Wall Street Journal analysis cited three reasons for wages' stagnation beyond the recession:

Economic growth, at less than 2 percent for three straight quarters, is too low. Before the recession, it averaged 3.5 percent.

Businesses are managing payrolls differently. Many firms that laid off workers rather than cut wages during the recession are coping now by cutting wages.

Globalization continues to put pressure on wages. The Boston Consulting Group predicts that by 2015, some industries will see only a 10 percent difference between wages in the United States and in China.

Long periods of wage stagnation, even as many in corporate America are recording record profits, are a recipe for trouble. That's not an appeal for class warfare. It's an acknowledgment that current economic trends aren't good for this country.

Labor Department data show that average hourly pay for nongovernment, non-management workers declined to $8.77 an hour last month, compared with $8.85 a year earlier.

It's time to turn that trend around. This country's consumer-based economy won't thrive again until workers can afford to spend more of their paychecks on goods and services.

A number of economists are suggesting ways to address America's slumping wages. Among other things, former Labor Secretary Robert Reich suggests eliminating payroll taxes on the first $15,000 in income and requiring companies to spend more of their earnings on upgrading workers' skills.

Perhaps more than anything, perspectives must change. Wage increases must be seen as investments. Well-paid consumers make the purchases needed to keep the U.S. economy humming.

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