Why middle class households are worse off now than 16 years ago

WASHINGTON - Once upon a time, American men used to get something called a "raise."

That is when your employer would actually pay you more money. Now, it is true that some people still have experience with this all-but-forgotten practice, but even the ones who do tend not to get pay increases that keep up with price increases. That is why, as David Wessel of the Brookings Institution points out, the typical male worker actually saw his after-inflation pay fall between 1973 and 2014.

What is four lost decades between friends?

So why have median male earnings flatlined over a time when the economy has doubled?

Well, it's the inequality, stupid. The tricky thing, though, is that there are two different kinds. There is inequality between workers and owners, and inequality between workers themselves. It is this last one that is the biggest culprit when it comes to why a growing economy has not meant growing incomes for so many people. The combination of tax cuts for the top, new technologies that have helped high-earners more than anyone else, and globalization moving manufacturing jobs overseas has made growth much more lopsided the last 30 years. A rising tide, in other words, might lift all boats, but not many people can afford a boat anymore.

But, at the same time, inequality between capital and labor has hit a postwar high. The question is whether that is a blip or a beginning. Between the 1970s and 1990s, labor's share of income bounced around in a pretty predictable pattern: up during the booms and down during the busts. But after the tech bubble burst in 2000, it collapsed and didn't recover. The same thing happened after the housing bubble went poof amid a parade of National Association of Realtors ads assuring us that everything was fine. The result of these two kinds of inequality is that workers are not only getting a smaller slice of the income pie, but typical workers are also getting a smaller piece of a smaller slice now that the top 1 percent of workers are gobbling up so much.

Households, though, have been able to cover this up by having women enter the workforce and then getting raises. Well, at least they used to be able to do that. The problem now is that women's labor force participation has actually been declining since the Great Recession hit, and their wages have plateaued over that time as well. That's left households without any more escape valves to deal with the fact that men's earnings haven't gone up, in inflation-adjusted terms, for 40 years. It's no surprise, then, that middle class households are worse off now than they were 16 years ago.

At this rate, the middle class might not be partying like it's 1999 by even 2039.