The New York Times (pg. C-1), August 2, 2006


[Rachel's introduction: "Since peaking in 2003, the real hourly pay of the median worker has fallen about 2 percent. The decline has been closer to 4 percent for people in the upper-middle part of the wage distribution and for those toward the bottom. In essence, most Americans have not been receiving cost-of-living raises, and the national mood seems to be shifting as a result."]

By David Leonhardt.

Last week, as the Chicago City Council prepared to vote on a bill that would impose a $10 minimum wage on the city's big-box retailers by 2010 and require them to pay health benefits as well, the big guns came out to defeat it.

Mayor Richard M. Daley said the bill was tantamount to redlining, because it would keep stores and jobs out of black neighborhoods. Andrew Young, the 1960's civil rights leader, traveled to Chicago and chided black leaders who supported the bill. Around the city, Chicagoans could see a "Don't Box Us Out!" advertising campaign paid for by Wal-Mart, and editorials in both Chicago newspapers denounced the bill.

But it passed anyway: 35 votes in favor and just 14 against, meaning that even if the mayor uses a veto -- something he's never done since taking office in 1989 -- he may lose.

Meanwhile, in Colorado on Monday, Gov. Bill Owens signed a bill requiring people to prove that they are legal residents of the United States before they can receive government benefits or a professional license. The debate over the law has dominated the news in Colorado for weeks, a good indication that immigration will be a big issue in this year's midterm elections and not just in border states.

The common ingredient in Chicago and Colorado isn't simply populist anger. It's a particular anxiety that people have about their paychecks. Whether the culprit seems to be Wal-Mart's drive for profits or an illegal immigrant who takes someone's else job, many families feel as if they're falling behind, and they're right. While it can be dangerous to make too much of two isolated incidents, these seem like a signal that the politics of the American economy may be coming to a turning point.

Going back to the 1970's, the single best predictor of the nation's mood has been its collective paycheck. For all the other things that affect public opinion, like a war or a scandal, the power of wages jumps out at you when you look at broad polling data over the last 30 years.

When pay has been steadily increasing, as it was in the 1980's and late 90's, optimism has surged. But when pay stagnates, pessimism about the country's future inevitably takes over. As Andrew Kohut, president of the Pew Research Center, says, "When their jobs aren't going anywhere, many people lose their optimism about the country making economic progress."

There have been only three periods since World War II when pay increases have fallen behind inflation. The first came in the 1970's, after decades of healthy raises. The public malaise became so severe at the time that a sitting president was moved to say, "For the first time in the history of our country, the majority of our people believe that the next five years will be worse than the past five years." A year later, that president -- Jimmy Carter -- was unseated by the Reagan revolution.

The second period started at the very end of the 1980's, and it left many Americans convinced that Europe and especially Japan had passed this country by. The worries fueled the fleeting success of presidential campaigns by H. Ross Perot, Pat Buchanan and Jerry Brown and eventually forced the early retirement of the first President Bush and the Democratic leadership in Congress.

The third period of wage stagnation is now. Since peaking in 2003, the real hourly pay of the median worker has fallen about 2 percent. The decline has been closer to 4 percent for people in the upper-middle part of the wage distribution and for those toward the bottom, according to Labor Department data analyzed by the Economic Policy Institute. In essence, most Americans have not been receiving cost-of- living raises, and the national mood seems to be shifting as a result.

In the most recent New York Times/CBS News poll, conducted in late July, people were asked how their children's living standards would one day compare with their own. Only 18 percent said "much better," and 30 percent said "somewhat better." This is the first time in the 12 years that question has been asked that fewer than half of respondents predicted that their children's lives would be better.

This fear, I think, explains a good bit of the desire to legislate higher wages in Chicago and to keep out immigrant labor in Colorado. Right now, Americans' view of the economy is nowhere near as negative as it was in the early 1980's or early 90's, but there is a real anxiety about its direction. Mr. Kohut said his polls showed a big drop in the number of people reporting that they had made progress over the last five years. According to the University of Michigan's consumer poll, a stunning 57 percent of Americans say they expect the next five years to bring periods of widespread unemployment up from 38 percent two years ago.

The obvious analysis is that this will help the Democrats, the party out of power, and to some extent it probably will. Independent voters are now nearly as pessimistic about the economy as Democrats are. But the only solid historical conclusion is that falling wages will bring some kind of political turmoil. Wage stagnation helped elect both Ronald Reagan and Bill Clinton, after all.

Moreover, the complex reality of a growing economy that isn't benefiting most workers will tempt both parties in some dangerous ways. Many Democrats have taken to exaggerating the economy's problems in recent years -- overlooking, say, the resurgence of cities, the decline in interest rates and the benefits of technology -- and have ended up out of step with the voting public. "This idea that people are worse off than 20 or 30 years ago is so ludicrous," said Jason Furman, an economist who advised John Kerry's 2004 campaign. "And I've come to appreciate how damaging it is."

President Bush and his advisers, meanwhile, continue to talk about the rise in average income, which is happening almost entirely because of gains at the very top. Among their many attempts to talk up the economy, my favorite was a chart released by the Treasury Department showing that median household income had fallen since 2000 -- but not by as much as it had in the early 90's. That's probably not going to make people feel a lot better. So don't be surprised if the local outbursts of anxiety in Chicago and Colorado soon go national.