This paper is a research on the changing policies and legislation on wages and how it has affected the income of American working class families by analyzing the history of wages in America from 1880 when the factory system led to the development of the industrial working class to 2008 where wage inequality and falling value of wages has impacted the actual incomes of working class families.
The main problem that the study wants to answer is whether there is a relationship between the historical development of capitalism in America and the problem of falling incomes due to the current policies and laws concerning wages.
To find out the answer to the problem the research will review the history of industrialization, labor unions, and wage policies in America.
The stagnation of wages in America has led to a widening gulf in the income levels between those on top those at the bottom of the income ladder. The real value of wages has also fallen as compared to its value in the 1970s so much so that at present levels workers are earning 25% less than their counterparts 25 years ago.
Different factors such as flexible working hours, influx of cheap undocumented migrant labor, and the economic recession have been identified as the reason for the downtrend in the value of wages. One other problem is that in America wages are traditionally determined by market forces and as such its rate is determined by the law of supply and
demand. This means that the higher the supply of labor compared to a low demand of the job market would result in cheaper wages. In America today a lot of people are getting better education which translates to higher paying jobs but in reality the existence of such jobs are few and far between primarily because the economic recession has led to a lot of business foreclosures, or downsizing, and restructuring of companies which leads to the scarcity of jobs.
While there is a federal law that determines a standard minimum wage, statistics shows that between 1979 and 2003 there was a 29% decrease in real terms of the minimum wage. In 2007 the real median household income fell about 0.6% lower in 2007 compared to the levels at the end of 1990. Although there was a growth in incomes by 1.3% or about $665 between the years of 2006 and 2007 all in all this growth is not enough to recover from the loss of income levels in the previous years. Income inequality reached even higher levels when former President George Bush came to power, with the incomes of the poorest households declining in comparison to the rising incomes of the richest households.
The current situation is as much a product of historical development in terms of policy decisions as it is an isolated social phenomenon brought about by a modern globalized economy. Since the 1970’s American wages has seen a steady decline as the post-war boom era came
to an end and the global economy was first hit by recession that continued with its economic roller coaster ride up to the early 1990’s. There was a slight pickup in the economy during the technological revolution and construction boom of the mid-90s, but this was not based in the development of productivity or industrial growth but was more due to an artificial portfolio investment boom and growth of credit which led to the market crash during the early millennia.
As a response to the crisis governments and corporations have introduced measures aimed at saving the interest of businesses rather than securing jobs and protecting wages. Downsizing of production, plant and management restructuring of industries, and the flexibility of working hours from a standard 8 hour working time has led to lower wages which in turn leads to low family incomes.
One of the factors that also affects wages and wage policies is the organized strength of workers and trade unions. The federal minimum wage standard was actually established in 1938 as a response of government to the growing threat of trade unions and is part of the efforts of the Roosevelt administration to win over labor while protecting the interest of capitalists. In 1980 labor unions have been constantly attacked by right wing conservatives in government who see organized labor as a threat to the economic interest of big business. Union busting and a downtrend in union membership and union militancy led to the introduction of measures that have
attacked job security and gave corporations a free hand in determining wages.
The attacks on labor unions have led to an onslaught of wage violations by big businesses. These violations include non-payment of overtime pay, their take home pay lessened by illegal deductions to their paychecks, being forced to work beyond their schedule without being paid and being paid less than what is mandated by law to be the minimum wage standard.
Most of those who suffer violations are low wage workers, 39% of whom are undocumented, 31% legal migrants, and 30% are native born Americans. This data shows that how workers are treated and how their rights to decent jobs and wages are violated is directly related to their capacity to organize, mobilize, and defend their rights.
The research addresses the following problems:
What are the policies of government in relation to wages and how this is shaped by external factors such as the demands of the economy, the interest of business, and the organized capacity of the labor movement?
How do changes in wage policies affect the incomes of working class families?
What are the key issues concerning wage and income viewed from a historical perspective?
The research shall utilize existing research and data gathered on labor and wage inequality. Significant events and wage trends shall be the primary focus of the research. Specific descriptive and historical data on the state of wages from the 1880 to 1940
shall be included in the research. It is also important to note that descriptive data will be used due to the difficulties in attaining wage information beyond the 1940’s as reflected by Robert Margo, author of the Working Paper No. 286, The History of Wage Increases in America. According to his book, providing analysis on wage inequality before 1940 is difficult. Pre-1940 trends of wage inequality were analyzed only according to averages in the different occupational groups.
From the period of the 1821 to 1880s, the growth rate of wages of common labor workers is at 1.04%, artisans received 0.73% while the growth rate of the clerks reached 1.52%. The growth rate of the clerks’ wages (who are considered as the major white collar job in this period), moderately rose prior to the Civil war compared to the common labor workers. The clerks being considered as the highly educated with their work on accounting and managerial functions and their moderate rise in the rate of wage growth contributes to the demand for educated labor before the civil war.
The white collar workers suffered a decline in its wages before 1930. Paul Douglas explains that the educational expansion might have caused this substantial decline. The educational expansion reportedly increased the supply of educated workers in the early 20th century.
According to Margo, the rising portion of the growth rate appeared on the period of 1820 to 1860. After 1860, wage inequality declined during the World War I
but rose again and peaked in the late 1920s. Between 1929 and 1950, inequality continuously decreased and reached two decades of stability from the year 1950 to 1970 after which inequality again increased sharply in the 1980s.
The "Great Compression" of the 1940s resulted in a substantial narrowing of wage inequality within and between groups. Although long-term supply side forces played a role in generating wage compression, much of the decrease in inequality was associated with the effects of World War Two on the relative demand for less-skilled labor, as well as government policies specific to the War. (Margo, 1999).
The wage compression that occurred in the 1940s was sustained for some time after World War Two ended, but by 1960 inequality had begun to creep back towards pre-World War Two levels. The baby boom, however, kept wage inequality from rising further in the 1970s. (Margo, 1999).
Several factors explain the increased dispersion in wages in the bottom half of the distribution during the 1980s and the slight decrease afterward. The characteristics of the workforce changed significantly: education levels increased, women increased their share of work, and the workforce grew older. Those compositional changes alone would have somewhat increased dispersion in the bottom half of the wage distribution both during the period from 1979 to 1990 and the period from 1990 to 2005. (Congressional Budget Office, 2006).
Income inequality in the United States has risen during Bush’s presidency. While real median income for households near the top of the income distribution rose during the Bush years, incomes at the middle and the bottom fell. Median income fell 0.6 percent ($324) from 2000 to 2007. Income at the lowest 20th percentile fell by 6.0 percent ($1,285) and at the 10th percentile by 4.5 percent ($579). (US Congress, Joint Economic Committee, 2008).
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