If US wages are stagnant, why are Americans’ incomes rising?

Time is money.
Time is money.
Image: Reuters/David Mercado
We may earn a commission from links on this page.

Americans are not getting much of a raise, but they certainly are getting to work more.

Average hourly earnings in the US were 2.8% higher than they were a year ago. Sounds pretty good, right? Actually it’s not. With inflation at about 2.6%, hourly earnings barely rose in real terms.

This lack of strong growth in inflation-adjusted hourly earnings has been true for the last couple of years. Yet, as economists Ryan Nunn and Jay Shambaugh point out in a new report for the Brookings Institution, household incomes are still rising. From 2016 to 2017, the US Census found that inflation-adjusted household incomes rose by almost 2%, and preliminary data suggest incomes are likely to go up in 2018 as well.

How is that possible?

Nunn and Shambaugh find that it is largely because more people are working and those that are employed are working more hours. For 2017, the researchers found that about 65% of US income growth was due to increased employment, 15% to more hours worked, and just 20% was due to raised wages. In 2018, the role of additional hours has increased to 40%, increased employment accounted for nearly 50% and raised wages just above 10%.