To boost incomes, Uncle Sam should lend a hand
Low wages in the US are unlikely to rise. And other ways to increase household income, such as two earners and easy credit, have run their course. Washington can immediately help Americans struggling to make ends meet by expanding the successful earned income tax credit.
The Great Recession and its aftermath are at the forefront of Americans' concerns right now. But wages were in trouble long before the economic crisis hit in 2008. After rising steadily for a generation following World War II, the wages paid to Americans in the lower half of the earnings distribution have barely budged since the 1970s.
That isn't because the US economy has failed to grow. It's because growth of wages no longer tracks growth of the economy. Economic growth and wage growth have become decoupled.
This is worrisome. Rising income, even more than the opportunity to go from rags to riches, is at the core of the American dream. And people who feel they are better off than before tend to be more generous, altruistic, and participatory. If wage stagnation continues, America risks heightened frustration, alienation, and selfishness.
Moreover, given that pay and incomes have been growing rapidly for those at the top, the country has experienced a sharp increase in polarization. At some point this could engender serious societal friction.
Maxing out on two-income households
According to one view, though, household living standards have been improving without wage growth, and they can continue to do so.
It's true that incomes in households with two adults have risen in spite of stagnant wages. But that's due largely to the steady increase in second earners. America is approaching the end of its ability to use rising household employment as a substitute for rising wages. And in any case this isn't a solution for single adults.
Page 1 of 4