Everything in your life revolves around your wages. If your wages are low, the house you live in, the car you drive, the food you eat, the holidays you take and the treats you purchase will all be affected.
Over the last few decades or so, we’ve seen huge changes in the financial industry following large collapses such as the recession in 2008. As a result, wages have certainly felt the pinch, but just how much have they changed?
Wages are much more than just how much you get paid; they’re impacted by several external factors.
The first factor that impacts and even dictates your wages is your ‘real’ wage. The term ‘real’ wage refers to how much money you get paid versus the price of the things you need to purchase to live e.g. food, fuel and bills. Over time, this fluctuates.
If you rewind to 1970, the median wage in the USA was $9,870. In 2020, the median salary was $68,703. This seems like this a huge increase, but when you look at it in terms of ‘real’ wages, it’s not. This is because since 1970, house prices have increased dramatically, as has the cost of most things. The price of living has increased because wages have not managed to keep up with inflation, meaning the median ‘real’ wage of a U.S worker hasn’t much changed over the last 50 years.
This is partly due to the huge economic collapse in 2008.
The Cost of Living
In society there is an expected and accepted standard of living which includes food, housing, bills, healthcare and tax. This is referred to as the cost of living. This changes depending on the area you live in, and it has also changed over time. For example, in 2020 it’s widely accepted that internet access and a computer/smartphone are essential and these are now factored into the cost of living and therefore wages, but if you rewind as little as 20 years, these were not essential or widely in circulation and so were not factored in.
The cost of living in New York is vastly more expensive than in North Carolina. This is because New York has a massive economy which means there lots of jobs. Lots of jobs means more people work there and therefore want to live there. When so many people are densely packed into a small area, space becomes a premium which, in turn, pushes things like rent prices up, making the cost of living generally higher.
To compensate, the wages in New York are typically higher, and this is true in large cities around the world such as London, too. This is why particularly across the USA, the minimum wage varies.
Some countries have like the UK have introduced a national living wage to ensure workers are guaranteed a wage that reflects the true cost of living. It’s worth noting that in this instance, the living wage and the minimum wage differ, as do they by age. For this reason, some companies are a living wage employer to all their staff regardless of age, whilst others maintain the minimum wage. More information can be found at Paydata here.
In theory, as the cost of living increases, your wages should increase as a result.
Regardless of the living wage and the minimum wage, the cost of living is always impacted by inflation.
Inflation vs the Cost of Living
Many people get confused between inflation and the cost of living, but they are not the same and they are not necessarily synonymous, although they are definitely linked.
Inflation affects the cost of living because as the price of items increases – or inflates – and your wages stay the same or don’t increase at the same rate, you can’t buy as much. As your disposable income dwindles, you’re less likely to splash on goods and services that aren’t a necessity.
A high inflation rate is bad for the economy because people are spending less, whereas a low inflation rate is the opposite, although an extremely low indicates a slow growing economy.
In simple terms, if your pay rate falls below the inflation rate, you’re losing money because you have to pay more for your goods.
No matter what city you live in and how high the wages are, your cost of living will always be impacted by inflation.
Over time, the difference in wages between certain groups of people has slowly decreased as society shifts to be more inclusive and transparent.
The gender pay gap is one of the most hotly contested issues when it comes to wages. In 2015, the median salary for a man in the United States was 26% higher than for a female. In 2020, that gap shrunk to 19%. In real terms, for every $1 a male earns, a woman earns $0.81 – even if they’re equally as qualified, the same age, have the same experience and do the same role. Following trends in feminism and equality, women are seeing changes in their pay year on year as businesses move to narrow the gap between men and women.
The pay gap extends to race, too. For every $1 a white male earns in 2020, an African American male earns $0.87, and Native Americans and Hispanics earn $0.91. Again, this is something that has slowly improved over time, but it is counteracted by differences in opportunities available and racial discrimination in the work place that extends beyond pay.
Whilst there has been an improvement to a higher standard of living over time – something which continues to improve as time goes on – pay generally hasn’t kept up. For countries like Britain, the effects of Brexit could have an even bigger impact on wages.
Wages have increased, but so has the cost of living, and whilst pay equality is slowly dissipating, it’s not at zero which is where it should be in a modern society. So, whilst a female might see higher wages now than five years ago, they’re still not at the same standard as white male. Paired with inflation and the cost of living, the gap between the high earners and those at the bottom of the scale is widening and showing no sign of closing.