Stagnant wages imperil financial security

January 11, 2014 at 12:00 AM EDT
Wages in the U.S. have been largely stagnant over the past 45 years, but during the same time span consumer prices have risen dramatically. Hari Sreenivasan discusses this trend and its effect on poverty with Bloomberg BusinessWeek reporter, Roben Farzad.

HARI SREENIVASAN: One factor contributing to poverty, stagnating wages. As this graphic shows, wages adjusted for inflation have been virtually flat for 45 years, but consumer prices have been rising sharply during that same period. For more about this and its connection to poverty we’re joined now via skype from Richmond, Virgina by Roben farzad. He’s a contributor for Bloomberg Businessweek. So let’s talk about this gap between wages and purchasing power. Why is that different?

ROBEN FARZAD: Because if you’re just tempted to look at the fact ‘Oh, I made $50 a week’, let’s say for argument sake, ‘in 1970 and I make $60 right now so it’s not bad,’ in reality you’re fooling yourself in real terms. Because inflation is pernicious even if it’s growing in the low single digits like 2 percent or 2.5 percent, like we’ve been used to for the past decade. When you compound it over several decades it’s like singeing off three quarters of your dollar every time you take it out of your pocket. People tend to look at things in nominal terms and in the end when they can’t buy as much as they’re used to on what they were making, they get blindsided.

HARI SREENIVASAN: But what are some of the factors contributing to it? People will say, ‘listen now I have access to goods and services from all over the world at even cheaper prices, so maybe I don’t need to make as much.’

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ROBEN FARZAD: Well that has tempered the pain certainly. But that is also a function of really aggressive offshoring and outsourcing. And these jobs, these decent manufacturing jobs, used to be able to be a high school graduate, or at worst you know maybe have an associates degree from a two-year program at a college and get a decent living wage, and maybe get benefits and have hopes of raising a family of four and putting kids through high school and what not. And that has so deteriorated in a cloud over the past several decades. You can’t count on there being good paying jobs. People are realizing that their pension programs are no longer guaranteed, that companies are using increasingly part-time workers and contract workers.

HARI SREENIVASAN: Okay, let’s talk finally about the cliff effect. This urge for people to not want to raise or not make a dollar more than what actually gets them in the poverty zone?

ROBEN FARZAD: It’s one of the evergreen and very valid criticisms of the social safety net in the United States. It’s so frustrating for people who are on the brink of being able to get out of assistance, whether you’re talking about food stamps or Medicaid, but they know that for every incremental 10 dollars that they make, they’re gonna lose all their benefits, and they can’t do that. Suppose you’re making 19,000 dollars a year and you have a chance to make 22,000 dollars a year, but you’re going to have to pay for out-of-pocket health insurance, or go uninsured, and then pay out-of-pocket groceries when you were getting food stamps before. So it gives you a disincentive to go out and find better paying work. and until the system becomes more proportional you’re going to have millions of Americans, especially during a time of record food stamp use, sticking to that cliff.

HARI SREENIVASAN: Alright, Robert Farzad, thank you so much for your time.