NCPA - National Center for Policy Analysis


December 26, 2006

The latest reports on wages and income can discount one more canard about the current economic expansion -- namely, that wages are stagnant and workers are doing far more poorly than they did in the 1990s, says the Wall Street Journal.


  • Over the past year, the real average wage for nonsupervisory employees has risen 2.8 percent.
  • That equates to about a $1,200 increase in purchasing power for the typical household this year.
  • Last year, real median household income was also up 1.1 percent after inflation

What's more, take-home pay would be rising even faster if it weren't for the high cost of health care:

  • The cost of health benefit plans to employers has climbed 65 percent since 2000.
  • Health insurance now costs the average employer $2 an hour per employee -- money that could otherwise be paid in wages, but still goes toward benefits, not into corporate profits.

But if wages are to make any more ground, says the Journal, more reform is needed:

  • The Bush tax cuts should be made permanent; if Congress lets them expire in 2010, as many Democrats are urging, the average family will suffer the equivalent of a $2,000 a year pay cut.
  • Slashes in the corporate income tax are also needed; a recent study for the American Enterprise Institute examined 72 nations over 22 years and found that wages are significantly responsive to corporate taxation.
  • According to the study's authors, if the U.S. were to cut its 35 percent corporate tax to the Organization for Economic Cooperation and Development's (OECD) average of 30 percent, American manufacturing workers would gain nearly a 10 percent pay raise dividend within five years, or roughly a $3,500 a year pay boost.

Source: Editorial, "The Wages of Growth," Wall Street Journal, December 26, 2006.

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