ROBERT SIEGEL, HOST:
Most Americans still aren't seeing big pay raises even though the job market is slowly recovering. Last month, the official unemployment rate dropped below 5.5 percent for the first time in seven years. The problem of stagnant wages goes back a lot further, and it's one of a number of big challenges likely to confront the next president. This week, we're exploring some of those challenges and the tools that can be used to address them. It's a series we're calling Day One. Here's NPR's Scott Horsley.
SCOTT HORSLEY, BYLINE: Michael Hall has a unique vantage point to observe the ups and downs in Americans' pocketbooks.
MICHAEL HALL: I'm an elevator operator at the Space Needle in Seattle.
HORSLEY: Hall, who's 30, has held that job for seven years. At first, he shared in the success of the popular tourist attraction. Thanks to a union contract, he got regular raises that at least kept pace with inflation. But the contract ran out, and Hall's wages haven't budged in four years.
HALL: When I moved first, I could put some money into savings every check, still go out, you know, grab a beer. But, you know, after about two or three years, suddenly it's like there's seven of us in a house. And then finally I started to find myself about a year ago being paycheck-to-paycheck.
HORSLEY: Stagnant wages aren't just a problem for individuals. When workers like Hall don't have money to spend, it's a drag on the whole economy. And the problem has been growing for decades. Since 1979, average wages in America have barely kept pace with inflation. John Pallaoro is a self-employed truck driver who says his paycheck stretched further back in the 1970s.
JOHN PALLAORO: I was able to purchase a suburban house in the mid '70s for the price of barely one year of wages - two years at the most. My standard of living is probably reduced by 50 percent from 40 years ago.
HORSLEY: One root of this problem is sluggish productivity growth. In the decades after World War II, Americans' productivity climbed steadily - nearly 3 percent every year. In the mid '70s, though, that growth downshifted to less than 2 percent.
JAMES PETHOKOUKIS: One obvious lesson is it's better to be growing fast than to be growing slow.
HORSLEY: James Pethokoukis is an economic policy scholar at the conservative American Enterprise Institute.
PETHOKOUKIS: The default Republican position would be, we need to reduce taxes, we need to reduce spending so more of America's resources are being run by the private sector, and that would boost economic growth.
HORSLEY: Other proposals, such as education reform and increased investment in public works, are also intended to boost productivity. But that's not the only challenge. Larry Mishel of the left-leaning Economic Policy Institute notes, since the 1970s there's been a disconnect between productivity and wages. So even when workers produce more, they don't necessarily see the benefits.
LARRY MISHEL: We have created lots of income, lots of output, lots of wealth over the last three decades. The problem is that that has not accrued to the vast majority.
HORSLEY: Virtually all the gains have gone to those at the top of the income scale. In the past, politicians have sometimes tried to address that through the tax code, taking a slightly larger cut from the wealthy and using tax credits to pad the pockets of the poor. But there are political limits to that approach. Some people consider such government redistribution akin to adding or taking away points after the whistle is blown. Mishel says policymakers need to pay more attention to shaping the rules of the economic game so average workers can command higher pretax wages.
MISHEL: The problems with people's paychecks is not what the federal government is taking out in taxes, but it's what employers are not putting into their paychecks.
HORSLEY: Just ask elevator operator Michael Hall. His paycheck has flat-lined for the last four years, even though he says business at the Space Needle has been up, up, up.
HALL: We're busier than we ever were. One full elevator - that pays most of us working for the day, and we'll do that, you know, a hundred times. I mean it's sort of insulting that they can't afford to keep paying us enough to live in the city.
HORSLEY: There is one stretch in the last 35 years that offers a glimmer of hope for struggling workers. That's the late 1990s. During that period, the economy grew about twice as fast as it did last year. What's more, the gains were widely shared. Economist Jared Bernstein of the Center on Budget and Policy Priorities says people on every rung of the income ladder were climbing together.
JARED BERNSTEIN: What was distinct about that period can be summarized in two words - full employment - or maybe three words - very full employment.
HORSLEY: Unemployment in the late 1990s was under 5 percent. Some months, it was under 4 percent, and that gave workers everywhere lots of leverage to demand higher wages. Short of full employment, Bernstein says, there are other policies that could boost workers' bargaining power, including a higher minimum wage, steps to make it easier for unions to organize and immigration policies that limit the growth of a shadow workforce.
Many of those policies will be debated over the next year and a half by those who seek to occupy the White House. As the U.S. economic elevator starts to climb again, a central challenge for the next president will be making sure American families aren't stuck on the bottom floor. Scott Horsley, NPR News, Washington.
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