Inequality's toll on middle-class wages: $18K

Here's a number to remember for those who feel that their financial prospects have hit a wall: $18,000.

That's how much the Economic Policy Institute (EPI) says middle-class Americans are losing in annual wages because of rising income inequality.

The liberal-leaning think-tank estimates missing wages by considering real average annual household income, which rose by 53.4 percent from 1979 to 2007. While that might seem healthy, the increase was mostly due to huge gains by the country's wealthiest earners. For 90 percent of American households, income growth was actually below that average rate.

If inequality hadn't worsened during those years, middle-class households would have had annual incomes that were $18,000 higher by 2007, the study notes.

"This growing inequality of income has a real effect on everyday people," said Elise Gould, author of a new study and director of health policy research at EPI. "The top 1 percent and top 1/10th of 1 percent have grown so much that it pulls up average wages" but that fails to reflect the reality for most Americans, who have suffered from stagnating wage growth.

If middle-class income had grown at the average rate, a typical household would have earned $94,341 in 2007, instead of its actual income of $76,451, the study said.

The country's widening income and wealth gap isn't just an esoteric issue because stagnant wages lead to weaker demand for goods and services. That, in part, slows down hiring, and adds to the obstacles facing a still-recovering economy. Even in the last year, wages have suffered, with real hourly wages declining for almost all income segments from 2013 to 2014, the report found.

"It's a vicious cycle that's happening more," Gould noted.

Given the findings of static and declining wages, the Federal Reserve should avoid putting the brakes on the U.S. economy, Gould added.

Interestingly, the 10th percentile of wage earners -- the lowest-earning 10 percent of workers -- likely saw a slight boost between 2013 and 2014 because of the minimum wage hikes enacted in several states. Those gains, however, were a measly 2 cents per hour. For all other percentiles, including the top-earning 95th, real hourly wages fell in the past year, the report found.

While the U.S. economy has been in recovery mode since officially exiting the recession in 2009, that's news to many Americans, who increasingly feel the American Dream is out of reach.

Ratings agency Standard & Poor's recently took the step of warning that the stark divide between the haves and have-nots could pose a threat to the U.S. economy. With the disparity nearing an "extreme" threshold, that could dampen long-term economic growth, the agency cautioned.

With increasing income inequality, living standards haven't been able to improve for "the vast majority" of Americans, the EPI noted.

Men have particularly suffered in wage losses. The report found that the pay of median male workers and low-wage men is now below the 1979 level. However, male workers in the 95th percentile "did substantially better, with their wages growing 40.1 percent," the report added.

Middle-income and low-income male workers have been hurt as manufacturing shifted out of the U.S., and unions weakened. "Trade-related losses and deregulation in trucking and airlines disproportionately hurt male wages as well," Gould noted.

Women, however, have seen stronger wage growth than men over the past three decades, fueled by the surge in women earning college degrees, enabling them to find better-paying jobs. Said Gould: "The relative educational upgrading of women would have disproportionately improved women's wages."

  • Aimee Picchi

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