Reconnecting Americans to the Benefits of Work
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Decline in prime age male labor force participation unlikely due to declining compensation, as median hourly compensation rose 12% from 1973-2019.
“…Another issue missed by wage trends is that over time, non-wage compensation became a greater share of pay. Non-wage compensation includes employer contributions to employees’ health and other insurance, contributions to retirement savings, and the payroll taxes they pay toward federal and state social insurance programs. These contributions were 13 percent of compensation in 1973 but 19 percent in 2019.51Figure 10 shows the same percentiles as in Figure 9, but this time wages at each percentile are adjusted upward by the same factor to account for non-wage compensation growth.52 This factor adjustment still likely underestimates the growth in compensation, particularly for the lower deciles for whom non-wage compensation often makes up a larger share of total compensation.53 Broader measures of compensation show more growth than a simple accounting of only wages. While median hourly wages among prime-age men rose 5 percent from 1973 to 2019, median hourly compensation rose 12 percent. At the 10thpercentile, wages rose 3 percent and compensation rose 10 percent during the same time period. Instead of falling, the 30th percentile of hourly compensation rose by 4 percent, and the 70th and 90th percentiles rose by 33 percent and 52 percent….”
“…Rather than showing trends in hourly wages,Figure 11 displays the trend in median annual earnings. Line 1 shows the trend in annual wage and salary income among those who have no self-employment earnings. From 1973 to 2019, the increase in the annual median was 6 percent, compared with a 5 percent rise in the median hourly wage of prime-age men. Adding nonwage compensation (Line 2) leads to a 14 percent increase (compared with 12 percent for hourly compensation).55 It turns out that adding the self-employed (and their earnings) to this sample does not change that conclusion: median annual compensation (Line 3) rises 13 percent.56 At the 10th percentile (not shown), annual compensation (including the earnings of the self-employed) rose 4 percent, compared with 10 percent for the 10th percentile of hourly compensation among employees. In this case, lower annual compensation compared to the hourly measure is likely because more workers at the 10th percentile do not work consistently throughout the year or work fewer hours overall. A final criticism of the trends shown in this section is that we cannot observe the compensation of non-working prime-age males who have dropped out of the labor force. It may be that the only reason compensation seems to have risen is because would-be workers with low compensation are more likely to drop out of the data. In this telling, demand for less-skilled workers may have fallen, but the charts above fail to show it because they only look at men who continue to work. Line 4 of Figure 11 attempts to address this criticism by displaying a counterfactual trend. Respondents in the Current Population Survey data who did not work in the previous year are asked why they did not work. The possible answers include inability to find work, being sick or disabled, taking care of home or family, going to school, retirement, being in the Armed Forces, or “other.” Imagine that nonworking men who were disabled, sick, retired, or said they were nonworking for ‘other’ reasons not listed did not become a larger group between 1973 and 2019 relative to workers. Further, imagine that all these additional men who would have been working would have been below-median workers had they held down jobs. Finally, imagine that in every year all men with no earnings who said they could not find work had worked at below-median compensation. Line 4 in Figure 11 attempts to say what the trend in prime-age male compensation would have been under those counterfactual circumstances. According to this counterfactual trend, the annual compensation of prime-age men still would have risen by 11 percent (instead of 13 percent).57 Note too that annual compensation estimates include men who worked part of the year before leaving the workforce, some with no intention of coming back anytime soon. For such men, their annual compensation is a poor indicator of what they command in the labor market, and if such men grow more common in the data over time, it will tend to pull the compensation trends downward. If pay growth is stronger for men with stable connections to the workforce, then the counterfactual of annual compensation may also conceal the growth in pay among below median workers with consistent labor force connections. Given this, the growth in annual compensation over time is very likely understated for men consistently participating in the workforce….”
"... Figure 12 walks through each of these adjustments to the productivity and compensation data, updating work by labor economist James Sherk.59 The two bolded lines below (light green for adjusted productivity and lightest blue for adjusted compensation) use the same implicit price deflator to show how wages and productivity remain closely associated with one another. The top green line shows growth in net hourly productivity for all workers including the self employed. Proponents of the pay-productivity gap often present just the top line and the bottom dark blue line showing average hourly compensation of production and nonsupervisory workers. By using a broader measure of workers (medium blue line) and using more accurately comparable measures of inflation, the pay-productivity gap all but disappears. The medium blue line is adjusted using the Personal Consumption Expenditures (PCE) index which approximates inflation for the things people regularly purchase. The lightest blue line is adjusted using the implicit price deflator (IPD) a better measure of price changes for the things Americans actually produce and is more directly comparable to measures of the associated changes in productivity. Comparing the lightest blue line to the light green line, more accurately aligns net hourly productivity with average hourly compensation using the same implicit price deflator and a similar universe of workers….”
Christina King, Scott Winship and Adam Michel, "Reconnecting Americans to the Benefits of Work," Joint Economic Committee, October 2021, https://www.jec.senate.gov/public/_cache/files/5ac0a254-ff00-4a18-baf0-bdfedb9bb154/connections-to-work.pdf
New Winship on declining LFP, finds that pay hasn't declined, nor has pay lagged productivity (though median pay has lagged productivity growth) implies decline in LFP is driven by other factors (cultural, transfers though he doesn’t attempt to quantify those drivers) Key chart, “…Rather than showing trends in hourly wages,Figure 11 displays the trend in median annual earnings. Line 1 shows the trend in annual wage and salary income among those who have no self-employment earnings. From 1973 to 2019, the increase in the annual median was 6 percent, compared with a 5 percent rise in the median hourly wage of prime-age men. Adding nonwage compensation (Line 2) leads to a 14 percent increase (compared with 12 percent for hourly compensation). It turns out that adding the self-employed (and their earnings) to this sample does not change that conclusion: median annual compensation (Line 3) rises 13 percent.56 At the 10th percentile (not shown), annual compensation (including the earnings of the self-employed) rose 4 percent, compared with 10 percent for the 10th percentile of hourly compensation among employees. In this case, lower annual compensation compared to the hourly measure is likely because more workers at the 10th percentile do not work consistently throughout the year or work fewer hours overall. A final criticism of the trends shown in this section is that we cannot observe the compensation of non-working prime-age males who have dropped out of the labor force. It may be that the only reason compensation seems to have risen is because would-be workers with low compensation are more likely to drop out of the data. In this telling, demand for less-skilled workers may have fallen, but the charts above fail to show it because they only look at men who continue to work. Line 4 of Figure 11 attempts to address this criticism by displaying a counterfactual trend. Respondents in the Current Population Survey data who did not work in the previous year are asked why they did not work. The possible answers include inability to find work, being sick or disabled, taking care of home or family, going to school, retirement, being in the Armed Forces, or “other.” Imagine that nonworking men who were disabled, sick, retired, or said they were nonworking for ‘other’ reasons not listed did not become a larger group between 1973 and 2019 relative to workers. Further, imagine that all these additional men who would have been working would have been below-median workers had they held down jobs. Finally, imagine that in every year all men with no earnings who said they could not find work had worked at below-median compensation. Line 4 in Figure 11 attempts to say what the trend in prime-age male compensation would have been under those counterfactual circumstances. According to this counterfactual trend, the annual compensation of prime-age men still would have risen by 11 percent (instead of 13 percent).
"... Prime-age men’s LFPR peaked at over 97 percent in 1955, slowly declined to 90.5 percent in 2008, and then dropped to 88 percent by 2014, as indicated in Figure 1. It inched up from there, but pre-pandemic it was only 89 percent in 2019. With the onset of the pandemic-induced recession in 2020, prime-age male labor force participation fell below 88 percent in April 2020, a record low. The pandemic may have worsened decades-long trends in declining workforce attachment, especially among lower-income prime-age workers....A large majority of the out of work force prime-age male population, 82 percent, does not have a bachelor’s degree. In the last twenty years, inactivity rose the most among men without a college degree and among those who previously earned low wages.30 These men are disproportionately likely to live in rural localities—particularly in the Southeast....
"...Figure 3 shows that labor force participation rises with education, and the participation trends for men and for women follow the same broad pattern as in Figure 1, regardless of education level. However, the decline in male labor force participation and rise in female participation vary by level of schooling..."
"... Figure 8 displays median wage trends for prime-age men at five different levels of educational attainment.The chart indicates that wages were lower in 2019 than in 1973 among men who lacked a four-year college degree—down 13 percent among those lacking a high school diploma, down 16 percent among those with a diploma but no other schooling, and down 12 percent among those with some college but no bachelor’s degree. Between 1973 and 2019 wages rose 15 percent among prime-age men with a bachelor’s degree but no graduate degree, and they rose 43 percent among those
with a graduate degree.... However, analyzing wages by educational attainment ignores the fact that, as Figure 2 shows, the workforce is growing more educated over time which changes the composition of the education groupings. For instance, looking at men without a high school diploma means assessing the wages of the least educated 30 percent of men in 1973 but the least-educated 10 percent of men in 2019. The group became much more disadvantaged over time, so all else equal, its pay would have fallen even if the pay of the bottom 30 percent did not. Similarly, in 1973, 19 percent of men were in one of the top two groups, but nearly 38 percent were in 2020. Therefore, the men in those top groups were less “elite” in 2020 than 47 years earlier.A better way to assess wage trends for less- and more-advantaged workers is to look at wages at fixed points of the wage distribution. The median wage earner is the one in the middle of the distribution. The earner at the 10th percentile is the one with higher wages than 10 percent of workers but lower wages than 90 percent of workers. Figure 9 shows wage trends for prime-age men at different percentiles. As indicated above, the median male worker saw a wage increase of 5 percent between 1973 and 2019. Below the median, the 10th percentile of wages rose 3 percent, and the 30th percentile fell 3 percent. Above the median, wages grew by 24 percent at the 70th percentile and by 42 percent at the 90th….”
Ed Comment:The last slide shows what a bunch of liars the left are. They claimed and continue to claim that productivity grew without wage growth.