—Michael Lyles, B1Daily

Something fundamental happened to the American economy around the end of the 1970s.

For much of the postwar era, young men entering the workforce could reasonably expect their earnings to rise as the economy became more productive. A high-school diploma could lead to a factory, construction, transportation or skilled-trade job capable of supporting a household.

Then the escalator broke.

The decline was especially severe for young men without college degrees. Economic Policy Institute research found that by 2011, the inflation-adjusted entry-level wage of a young male high-school graduate was 25.3 percent lower than that of an equivalent worker in 1979, a loss approaching $4 an hour in 2011 dollars.

That wasn’t merely a wage story.

It helped rewrite American adulthood.

The Economy Grew. Many Men’s Paychecks Didn’t.

The strangest part is that America didn’t stop becoming richer.

Productivity continued increasing. Technology improved. Companies expanded. International trade exploded. GDP per person climbed.

But the benefits became increasingly disconnected from the earnings of ordinary workers.

From 1979 to 2018, productivity increased nearly 70 percent while compensation for typical production and nonsupervisory workers rose only about 12 percent, according to Economic Policy Institute calculations.

Recent wage growth has improved the long-run picture somewhat. EPI notes that the late 1990s and the past decade produced meaningful gains. But it argues that those periods were exceptions within a much longer era in which typical workers’ wages failed to keep pace with productivity.

For young men entering the labor market, particularly those without college degrees, the consequences were brutal.

Manufacturing employment declined in many communities. Automation eliminated routine jobs. Globalization increased competition. Union membership weakened. The college wage premium increased.

The economy increasingly rewarded specialized education while punishing workers whose fathers and grandfathers had entered the middle class without bachelor’s degrees.

A Paycheck Isn’t Just a Paycheck

Economists can make falling wages sound clinical.

Real hourly compensation declined.

Labor-force participation weakened.

The wage premium changed.

But translate that into ordinary life.

A young man earning less money has greater difficulty qualifying for a mortgage.

He has less money for a down payment.

He buys fewer goods.

He contributes less to retirement accounts.

He may postpone moving out.

He may delay marriage.

He may postpone having children.

He may avoid starting a business.

Suddenly a wage problem becomes a housing problem, a family-formation problem, a consumer-spending problem and eventually a demographic problem.

The Marriage Connection Is Hard to Ignore

Marriage rates have fallen for many reasons, and it would be simplistic to blame wages alone.

But economics appears to matter.

Brookings researchers found a strong relationship between deteriorating male earnings and declining marriage rates. Men experiencing the largest earnings declines also experienced some of the largest reductions in marriage.

That makes intuitive economic sense.

Marriage isn’t merely romance. For many households it is also an economic institution.

Housing, children, transportation and healthcare cost money.

When young adults don’t believe they possess the financial foundation necessary to establish households, major life decisions can move later.

And when millions of people delay those decisions simultaneously, the consequences eventually appear in national statistics.

Housing Feels the Shock

This also helps explain part of America’s generational housing divide.

A house isn’t purchased with GDP.

It’s purchased with wages.

When home prices rise faster than the earnings of young workers, the entry point into ownership moves farther away.

That has enormous consequences because homeownership has historically been one of the principal mechanisms through which American households accumulate wealth.

Buying later means building equity later.

Building equity later means entering middle age with fewer assets.

That means less wealth available for retirement.

And eventually it means less wealth available to pass to children.

A weak paycheck at 25 can cast a surprisingly long economic shadow.

Then Comes Consumer Spending

America’s economy depends heavily on consumption.

Young workers with strong disposable incomes buy cars, furniture, appliances and homes. They eat at restaurants. They travel. They start families.

Young workers struggling with rent and debt behave differently.

They postpone purchases.

They choose smaller homes.

They keep vehicles longer.

They live with parents or roommates.

They save less because there is less available to save.

One person’s missing $5,000 in annual purchasing power may not move the national economy.

Multiply it across millions of workers for decades and the arithmetic becomes considerably uglier.

College Became the Toll Booth to the Middle Class

Perhaps the greatest transformation was educational.

America increasingly replaced the old message:

Work hard and you can earn a decent living.

With:

Get a degree first.

Workers with specialized education generally performed much better as technological change increased demand for skilled labor. Brookings found that the earnings premium enjoyed by male college graduates over workers with only high-school diplomas expanded dramatically over several decades.

But that solution created another problem.

College costs money.

Millions of Americans borrowed to obtain the credential increasingly required to access jobs their parents might once have entered without one.

So one economic problem partially transformed into another:

student debt.

Men Also Began Leaving the Workforce

Declining earning opportunities can eventually change whether people work at all.

Brookings found that deterioration in men’s earnings reflected both weak wage performance and increasing numbers of working-age men outside employment. It also found the decline was concentrated particularly among less-educated men.

That distinction matters.

If available jobs offer sufficiently poor compensation, some workers stop seeing employment as an effective ladder toward independence.

That doesn’t mean wages explain every man outside the workforce. Disability, incarceration, education, caregiving, health, family circumstances and personal choices all matter.

But economic incentives matter too.

A labor market offering fewer attractive opportunities shouldn’t be surprised when fewer people find that market attractive.

The Real Damage Was Breaking the Bargain

America’s postwar economic bargain was never perfect.

Women and Black Americans were frequently excluded from many of its best opportunities. Discrimination was rampant. Poverty remained widespread.

But there was an extraordinarily powerful economic expectation embedded within the system:

Each generation should become richer than the one before it.

For many young men, particularly those without college degrees, that expectation weakened.

The factory worker didn’t necessarily become a software engineer when the factory disappeared.

Sometimes he became a warehouse worker.

The $30-an-hour industrial job didn’t automatically transform into another $30-an-hour job.

Sometimes it became two $15-an-hour jobs.

Economists called it structural change.

Families experienced it as downward mobility.

America Is Still Paying the Bill

The American economy eventually adapted.

It always does.

New industries appeared. Technology created enormous wealth. Recent tight labor markets produced meaningful wage gains for lower-paid workers. Today’s economy isn’t simply 1979 with smartphones.

But the economic disruption that began several decades ago left fingerprints everywhere.

Delayed homeownership.

Greater inequality.

Declining union power.

More expensive credential requirements.

Weaker labor-force attachment among some men.

Later marriage.

Financial insecurity.

Regional decline in former industrial communities.

And growing anger among Americans who look at spectacular national wealth and wonder why prosperity seems considerably harder to reach from where they’re standing.

The lesson of the past half-century isn’t that America stopped producing wealth.

Quite the opposite.

America became astonishingly productive.

The deeper problem was that productivity and ordinary workers’ pay stopped moving together the way they once had.

And young men without college degrees were among those who absorbed the shock most dramatically.

An economy can survive that divergence.

It already has.

But after nearly half a century of economic, social and political consequences, perhaps the more important question is whether it can afford to keep repeating it.

—Michael Lyles, B1Daily