“Big Squeeze”

The “big squeeze” refers to the steady deterioration in real wages and working conditions in the United States since the 1970s, despite substantial growth in productivity. This deterioration has affected both blue-collar and white-collar workers and has been accompanied by decreasing economic security.

The phenomenon is often linked to globalization and the flight of manufacturing jobs to countries with lower labor costs. Although stresses like globalization, slower productivity growth, and the rising price of energy are relevant, researchers have emphasized that the squeeze has also been a political decision steered by deregulation, tax policy, and the limited and declining safety net mechanisms of the United States. In the late 1970s, after more than doubling in the preceding quarter of a century, real income for the vast majority of American workers stopped growing. The exact figures depend on the method of calculation as well as on the specific group studied, but at best, average hourly earnings since the 1970s have grown by only a few percent, and at worst have declined several percent. Male blue-collar workers have been the worst affected, seeing their real earnings fall by as much as over 10 percent; however, even highly educated workers have experienced only very modest income growth.

At the household level, most Americans enjoy higher incomes than in the 1970s, but the explanation for this improvement lies in more hours worked per household, not in improved wages and salaries. Married women now work far more hours than before, so that in the average middle-class household, the aggregate hours of husband and wife add up to months more full-time work per year today compared with the 1970s. In addition, more workers than ever before hold down more than one job. As a result of this increase, Americans now work longer hours than the workers of any other advanced economy, including hundreds of hours more per year than German, French, or British workers. More time spent working has to some extent compensated for stagnating or falling real hourly earnings, but American households are also experiencing greater insecurity and greater levels of debt than before.

Repeated corporate downsizings, the rising cost of health care and health insurance, and the decline of defined pension plans and employer-provided benefits have contributed to greater levels of income fluctuation and a pervasive sense of anxiety among many American workers. Income instability has risen substantially since the 1970s: Both blue-collar and college-educated workers, including those in their peak earning years, now commonly experience sharp swings of income from one year to the next. As a result, the average American is now much more likely than before to endure at least a year of poverty during his or her adult life.

Explanations of the combination of stagnating or falling earnings with productivity growth generally center on globalization and the harsher competitive environment that it has produced: As good manufacturing jobs have left the country and the service sector has come to dominate, earnings have fallen. Another oft-cited factor is the decline of labor unions, sometimes attributed [Page 21]to the greater competition generated by globalization. Globalization cannot fully explain the deteriorating position of American workers, however.

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