Figure 3 emphasizes how poorly wages have performed since the year 2000. Average wages on a Figure 3 basis hit a high point of $$19,112 in 2000. They then dropped back to $18,145 in 2003. In 2007, they briefly surpassed the year 2000 high point, hitting $19,573. More recently they dipped again and (with government deficit spending) have recovered a bit, rising to $18,053 in 2012. This is very low by historical standards; it is between the level they were in 1998 and 1999.
Looking at Figure 3, the other time when wages were flat was the period between 1973 and 1983. The thing that is striking is that both the current period and the previous “flat” period took place during periods of high oil prices (Figure 4, below). The vast majority of the rise in non-government per capita wages that has taken place has happened when the inflation-adjusted price of oil was less than $30 barrel.
We have discussed previously why high oil prices can be expected to have an adverse impact on wages. There are multiple ways this can happen. For example, oil plays a very direct role in growing and transporting food and in making gasoline. Thus, the cost of food and of commuting increases. This causes people to cut back on discretionary expenditures, leading to layoffs in discretionary sectors. Lay-offs in discretionary sectors means fewer jobs.
Another thing that happens is a change in the competitive situation that indirectly leads to layoffs. Oil is used in transporting many types of goods, and is used in producing a wide variety of products, such as asphalt shingles and synthetic cloth. Wages don’t rise at the same time as oil prices rise. The result is a mismatch between what citizens can afford, and the cost to manufacture and transport products. Some customers are “priced out” of the market. Businesses find that they must scale back the size of their operations to produce only the amount customers can afford. For example, a delivery service will operate fewer vehicles, if demand is lower, laying off workers.
