Economic Policy Institute – Josh Bivens, Elise Gould, Lawrence Mishel, and Heidi Shierholz | June 4, 2014

“Our country has suffered from rising income inequality and chronically slow growth in the living standards of low- and moderate-income Americans. This disappointing living-standards growth—which was in fact caused by rising income inequality—even preceded the Great Recession. Fortunately, income inequality and middle-class living standards are now squarely on the political agenda. But despite their increasing salience, these issues are too often discussed in abstract terms. This paper—and the Raising America’s Pay project that it launches—exposes the easy-to-understand root of rising income inequality, slow living-standards growth, and a host of other key economic challenges: the near stagnation of hourly wage growth for the vast majority of American workers over the past generation. It should not be surprising that trends in hourly wage growth have profound consequences for American living standards. After all, the vast majority of Americans rely on their paychecks to make ends meet. For these families, wages and employer-provided benefits comprise the bulk of income, followed by other income sources linked to labor market performance, such as wage-based tax credits, pensions, and social insurance. Even for the bottom fifth of households, wage-related income accounts for the majority of total income. Indeed, wage-related income has been a growing share of total bottom-fifth income over time, as the safety net shifts toward wage-related income supports (such as the earned income tax credit) while non-wage-related supports (such as Temporary Assistance for Needy Families) decline.”