BPEA | 1993: Microeconomics 2

International Trade and American Wages in the 1980s: Giant Sucking Sound or Small Hiccup?

Discussants: Robert E. Hall,
Robert Hall Headshot
Robert E. Hall Robert and Carole McNeil Joint Hoover Senior Fellow and Professor of Economics - Stanford University
Robert H. Topel, and
Robert H. Topel University of Chicago
Steven J. Davis
Steven Davis Headshot
Steven J. Davis William H. Abbott Professor of International Business and Economics - The University of Chicago Booth School of Business

Microeconomics 2, 1993

THE AMERICAN DREAM IS THAT each generation should live twice as well as its predecessor. During the hundred years before 1973, real average hourly earnings rose by 1.9 percent a year. At that rate earnings doubled every thirty-six years, and the dream was realized. The dream no longer holds. Since 1973 the United States has failed to match its historic track record. In 1973 average real hourly earnings, measured in 1982 dollars by the consumer price index (CPI), were $8.55. By 1992 they had actually declined to $7.43-a level that had been achieved in the late 1960s. Had earnings increased at their pre-1973 pace, they would have risen by 40 percent to more than $12.00. Or consider average real hourly compensation. This is a more comprehensive measure of the payments to labor because it includes fringe benefits as well as earnings. Between 1973 and 1991, real hourly compensation rose by only 5 percent. However the growth of labor income is measured, it clearly has slumped since 1973.