Sign of the times: A dip in middle-class income

In the topsy-turvy world of America's post-recession economy, the poorest workers are getting pay raises, while the best educated workers are suffering from shrinking wages.

That's according to a new analysis of wage trends from the Economic Policy Institute, a liberal-leaning think tank. The only group to see a significant wage gain in 2014 were the lowest 10 percent of American earners, which was likely driven by minimum wage increases in more than a dozen U.S. states.

On the other hand, the top-paid earners and those with college and advanced degrees suffered last year, with the analysis finding that earners in the 95th percentile witnessed a 1 percent decline in wages in 2014, while those with college degrees and advanced degrees saw hourly pay slip 1.3 percent and 2.2 percent, respectively.

The problem, according to EPI, is that the labor market has seen an erosion of bargaining power for workers, while persistent slack in the labor market is also weakening workers' ability to eke out raises.

"Decent wage growth has yet to be seen," said EPI senior economist Elise Gould on a conference call to discuss the report. She added, "Rising wages should be the norm in a growing economy."

What does it mean to be in the 10th percentile as compared with the 95th? Workers in the 10th percentile earned $8.62 per hour last year, or about $17,900, up from $8.51 per hour in 2013, or $17,700. Americans in the top bracket, meanwhile, earned the equivalent of $53.14 an hour last year, or about $110,500 per year, down from $53.64 an hour, or $111,500 annually, in 2013.

The median U.S. household income in December 2014 was $54,417, according to Sentier Research.

Inflation isn't to blame for the decline, given that the shrinking wages weren't accompanied by a significant rise in inflation. Instead, inflation has actually fallen over the past few months, with the inflation rate clocking in at only 1.6 percent last year. More to blame is workers' inability to bargain for higher wages, the report said.

At the same time, Americans are more productive than ever, as any harried worker can attest. Productivity gains should clear the stage for wage increases, but so far that isn't playing out for most workers.

Some experts say the divergence between productivity gains and wage growth may not be as great as EPI projects. Using different measures of inflation, High Frequency Economics chief U.S. economist Jim O'Sullivan disputes the idea that productivity has far outstripped wage growth. "[W]orkers are due for some catch-up, but mainly because of a 6 percent shortfall in the last seven years," he said in a note this week.

Still, wage trends last year underscore that policy makers can do a lot to boost workers' pay. Take the rise in wages for the country's lowest-paid workers, which the EPI says is proof that policy changes are positively impacting American families. Those states that raised their minimum wages last year -- including New York, Florida and California -- witnessed a pay gain of 1.6 percent for the lowest-paid workers, compared with a 0.3 percent increase for those without a rise in a state's baseline pay.

"This indicates that strong labor standards can improve outcomes even when the unemployment rate remains elevated and workers have severely reduced bargaining power," the think tank said.

Although almost every group of workers saw their earnings crimped last year, the highest-paid Americans have still fared better than everyone else since the Great Recession and into the halting recovery that followed the crash. From 2007 through 2014, for instance, people in the 95th percentile of income earners saw their wages rise 2.2 percent, while all other segments witnessed declines of between 1 percent to 4 percent.

Interestingly, while men continue to out-earn women, all men except the top earners witnessed slumping wages since 2007. While the 95th percentile -- those men making the most -- recorded a 4.9 percent boost in pay, men in every other segment saw hourly pay slide from 3.4 percent to as much as 5 percent.

Women, while still earning less, have emerged from the recession in modestly better shape, with their hourly wages remaining steady or rising for those in the 70th percentile and higher.

Walmart's (WMT) announcement today that it will give workers a pay raise starting later this year is a positive sign, but bigger issues remain, Gould noted. "We'd still need to see federal minimum wage increases, and Walmart and every other employer commit to wage growth. Our wage growth problem isn't anywhere near solved."

Aside from the push to raise the federal minimum wage, other policy steps such as increasing the threshold for overtime pay and adding paid sick time and family leave, would be positive for workers' wages, according to EPI.

Until the economy gets on stronger footing, the Federal Reserve should hold off in starting to raise short-term interest rates, the think tank added.

It noted, "There is no evidence of upward pressure on wages -- let alone acceleration of wages -- that would signal that the Federal Reserve Board should worry about incipient inflation and raise interest rates in an effort to slow the economy."