Two divergent quotes from a Labor Day report card for American workers, as reported by the Wall Street Journal:“There’s no doubt that relative to the growth rate of the economy over the last five years, the state of the American worker is in pretty sorry shape.”—Lawrence Katz, Harvard University and chief economist during the Clinton administration.
“Times are good for workers. They’ve got high consumption, high income, really low unemployment, a fairly secure environment—it’s a great market to be a worker.”—Kevin Hassett, American Enterprise Institute.
Which of these perspectives is correct? Truth to tell, some of both. In the five years ended May 2006, adjusted for inflation, wages grew 0.7%, total compensation including benefits grew 7.4%, and median household net worth grew 6.3%. Compare these with -1.5%, +2.0%, and +2.5%, respectively, for the five heralded boom years of 1990-1995. Pretty good news.
What’s the bad news? Wage growth hasn’t nearly kept pace with the growth in corporate earnings, worker productivity, or executive compensation, and this problem transcends any one administration. Why? Is this a problem of outsourcing or one that demands soaking the rich with higher taxes for redistribution? No. This is primarily the problem of a large and growing “education gap” with our international competitors and our failure to reform public education to make it much more productive so that it provides the skills and proficiency for our kids to be more successful in higher education and the global 21st century workplace.