Currently, the average American salary is five times higher than the mid-1970s. However, due to both increasing inflation and increasing social stratification, the real salaries of some American employees are clearly lower than they would have been forty years ago. A commentary from Marcin Lipka, Cinkciarz.pl senior analyst.
Judging from basic data regarding salaries in the USA, one can assume that quality of life has clearly improved there over the past few decades. In 1975, the average hourly wage was less than five dollars. Currently, this index is above 25 dollars. According to the official data from the Census Bureau, the average income of an American family in 2015 was at the level of 79k dollars, whereas forty years ago it was less than 14k dollars.
However, this data doesn’t fully reflect the actual purchasing power of people who work in the United States. This is because the average value is overvalued by people with a very high income. Therefore, the median (income for 50% is below this value and for 50% is above this value) is crucial in the case of salaries.
The presented values should also include inflation. Over the past forty years, the value of a statistical package of goods and services has become four times higher. Moreover, health care costs have increased ten fold. We should also categorize American employees according to their sex, as well as to their age. Only looking at the statistics this way will we be able to see who is earning the most and which social group’s income decreased over the past forty years.
Men earn less
In 2015, the median income of an American household was at the level of 56k dollars, which is 23k dollars less than the average. Forty years ago, the median income was at the level of 11.8k dollars. However, if this median were expressed in the dollar’s current value (which includes current inflation level), half of American employees would earn more than 47k in 1975.
Therefore, the household income increased 20% over the past forty years, which gives us an average 0.43% growth per year. Despite the fact that this value is symbolic, it might have been overvalued by the strong increase in the percentage of working women (from 43% to 54%). And even though the percentage of working men decreased at that time (from 71% to 66%), the larger contribution of women in the American labor market has likely had a positive impact on household incomes.
It’s also worth noting that over the past four decades, the real income of American men who are over 18 years old decreased. According to the latest Census Bureau data, this index was at 38.2k dollars, while in 1974 it was at the level of 39.1k (including purchasing power). However, the real income of women increased from 14k to 24k dollars.
The fact that the real income of American men decreased is especially vivid in both the 25-34 and the 35-44 age brackets. A decrease for these brackets was at the level of 15% (from 44k to 37k dollars) and 10% (from 54k to 49k dollars), respectively. However, this causes two questions. One – have real wages been stable for everybody? And two – if they haven’t, who has received a significant portion of their increase?
Real income doubled for 5% of employees
According to the OECD, the productivity of American employees has increased 70% since 1975. Theoretically, this should increase real incomes. However, the average real income per person of working age in 2015 was at the level of 31.7k dollars, whereas forty years before, this index was at 19.3k, which means an approximate 65% growth.
Moreover, this growth has been created by people whose income is far above the median. This means that, basically, the income level has not changed for approximately 40% of people who earn the least. However, the incomes of the wealthiest 20% increased from 120k to 200k dollars. Moreover, the incomes of the wealthiest 5% almost doubled (from 182k to 350k dollars).