Where The U.S. Economy Lags

Is it becoming a low-wage nation?

Despite conditions that have "improved remarkably" since 1995, the fundamental economic situation in the U.S. still can't be considered "good." That's the conclusion of labor economists Lawrence Mishel, Jared Bernstein, and John Schmitt of the Economic Policy Institute, a liberal Washington think tank. "Although the current income boom has generated substantial improvements, by many measures of adequacy, inequality, and income, the current economy still does not match up to reasonable expectations," they write in their forthcoming book, The State of Working America 2000-2001.

The authors concede that recent signs are encouraging. The jobless rate has plummeted, inflation is low, and labor productivity--output per hour worked--has grown at about 2.5% annually since 1995. That's nearly twice the 1.4% rate that prevailed from the mid-1970s through mid-1990s. Still, U.S. compensation--wages plus benefits--has risen more slowly than in most other advanced nations during the past decade (chart). Real compensation per worker grew at an average rate of 0.7% vs. a 1.1% annual gain for the European Union and even faster rates for nations such as Britain and Sweden. "At least among the rich, industrialized countries, the U.S. has become something of a low-wage country," the authors say.

Just focusing on wages doesn't improve the picture. While productivity rose by about 20% from 1989 to 1999, "typical workers received virtually none of this increase," write Mishel, Bernstein, and Schmitt. Rather than increasing along with productivity, median real wages for men actually fell during the past decade, while women saw only a 4% gain. Their conclusion: "The U.S. economy is among the least dynamic" of the industrial countries, a far cry from the now widespread belief in the New Economy.

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