Appendix to Chapter 8: The puzzle of the apparent fall in United States real wages

Summary

To simplify matters we will concentrate on two periods of ten years before and after the peak in weekly earnings in 1973. From 1963 to 1973 an index of real weekly earnings rose from 101.1 to 114.7 (1980=100) and in the next ten years fell back to 98.8, leaving a net drop of 2.25 per cent. The first things to suggest themselves as an explanation are hours of work. They dropped from 38.8 in 1963 to 35 hours a week in 1983, so that average real hourly earnings rose over the whole period by 5.9 per cent. To the extent that this fall was voluntary, the reduction in weekly earnings does not denote a loss of economic welfare. The next line of investigation is suggested by the fact that over the whole period real weekly earnings in manufacturing rose by 9.25 per cent, compared with the fall of 2.25 per cent for the whole economy. We know that most of the increase in employment in the United States has taken place in the service sector, in many parts of which, for example the retail trade, weekly and hourly earnings were lower than average in 1963 and were growing more slowly thereafter. Was the overall average being kept down by a relative shift in the labour force towards lower paid jobs?

Table A1 gives details of hourly and weekly earnings (in 1975 dollars) for eight industrial groups in the non-agricultural private sector of the United States economy, as well as figures for employment of wage and salary earners, for the years 1963, 1973, and 1983.