Wage Story, Even Longer Term

Jared Bernstein calls attention to a recent decline in real wages since October of last year. In response to comments, he posted further observations on the longer term increase in income and wealth inequality since the 1970s.

I'd like to suggest an "even longer term" story. Historically, the secular trend of growth in wages was matched with a secular decline in the normal hours of work. In 1957, Bureau of Labor Statistics economist, Joseph Zeisel wrote that the long term decline of the industrial work week was "one of the most persistent and significant trends in the American economy in the past century." But that secular decline of weekly hours in manufacturing came to a halt in 1945 and the decline in average annual hours began to actually reverse in the early 1980s.

Theory suggests that wages and hours are connected much as the early trade unionists had claimed in Mary Steward's doggerel, "whether you work by the piece or work by the day, reducing the hours increases the pay." Two factors contribute to an association between long hours and lower pay. One is that, all other things being equal, hourly productivity can be increased by reducing the hours of work. The other factor is that unemployment is higher with longer hours, which forces wages down. Of course, with lower wages, people work even more hours to "make ends meet" and we see a vicious cycle of longer hours, higher unemployment, lower productivity and lower wages...

I'd be curious to hear what Jared thinks of the novel argument that the end of the secular decline in hours has been a significant contributor to the stagnation of wages (see my January 2009 Submission to the White House Task Force).