In the long term, are we getting richer because pay is rising, or are we simply working harder? That’s the question looked at by some interesting new research from the Brookings Institution. The work compares long-term trends in the wages of US households with changes in the number of hours that households work. It finds that two-parent households in the US now work 26 per cent more hours than they did in 1975 but only earn 23 percent more in wages. In other words, the only reason America’s households are richer than they were a generation ago is that they’re working much harder.
The findings point to one of the most serious economic challenges now facing advanced economies. Day to day, our headlines may be filled by the politics of debt and the anxieties of bond traders, but beneath the hubbub is a deep hum of discontent that long-predates the bad times. It’s now well known that ordinary workers in the US have been missing out on the gains of economic growth for a generation. Long gone are the days when productivity gains flowed through into appreciable rises in real hourly wages for middle-class American workers.
Yet as the Brookings work shows, these trends in wages have run alongside another great trend: the entrance of women into the labour market as a key driver of increased working hours. In fact, since 1975 the average hours worked by American men have hardly changed while the average number of hours worked by women has doubled. That’s kept household earnings moving upwards even while individual earnings have flat-lined.
More recently, though, as women’s participation rates have neared those of men, the pace of growth has slowed. The strategy of raising household income by working harder has been running out of road.
As Gavin Kelly and I set out in Prospect earlier in the year, the UK economy now shows some worrying similarities to this American story. On the whole, wages in the UK had stopped rising long before the recent recession, with median wages flat even in the boom years of 2003 to 2008. And, just as in the US, the powerful force of women’s work is also petering out. From…