Falling wages for Nevada’s team

Kate Marshall and Elliott Parker

Monday, Feb. 23, 2015 | 9:41 a.m.

Baseball is a lot like life, they say, and the only thing that’s fair is a hit between first and third.

Certainly, salaries are as unequal on the field as they are among the fans. Top professional baseball players earn an average of 20 times more than typical players, yet studies show that few of these stars do much more than the average player on their teams to help their teams win. Fans get annoyed for good reason when their high-paid prima donna hits into an easy double play.

The same is true for Nevada’s middle class in the game of life. It used to be a basic principle of economic fairness that wages should be determined by how much is produced with that labor, but today it just ain’t so.

Until the 1970s, average real wages grew at the rate of labor productivity. From the 1970s through 2000, labor productivity grew by 1.9 percent per year while real wages only rose at half that rate. Since 2000, however, labor productivity has grown slightly faster (2.1 percent per year) while the growth rate of wages declined even more (0.6 percent per year). Cumulatively, real wages are now 40 percent lower than what labor productivity would predict, and the American middle class no longer leads the world.

This stagnation of wages looks even worse if we consider the median worker, since rising wages at the high end have pulled up the overall average, just as one overpaid star can distort a team’s average payroll, or one billionaire in the room makes everybody there a millionaire on average. Nationwide, real median wages have not improved in decades.

The median household in Nevada earned about $27,000 per year in 1987, according to the U.S. Census, and spent approximately 19 percent of that income on rent. Measured in today’s dollars, the purchasing power of that income was about $53,000.

By 2013, that same median Nevada household earned only $45,000 per year, in spite of being more productive and somewhat better educated than in 1987, and spent 23 percent of it on rent.

Until 2007, median incomes were 5-10 percent higher in Nevada than in the rest of the U.S., but today they are more than 10 percent below the rest of the nation. In Nevada, our team is working harder and earning less.

Incomes also have become increasingly unequal. From 1979 to 2012, the Economic Policy Institute reports that the average real income of Nevada’s top 1 percent more than doubled. Meanwhile, real incomes for everybody else fell by an average of 40 percent, and Nevada is one of only four states in which our real incomes declined both before and after the Great Recession. We are now the third most unequal state in the country: Nevada’s top 1 percent used to earn 10 times the average income of the rest of us, but they now earn 44 times as much.

Americans like to believe that the highest-paid players earn more because of better skills or harder work. More often it’s just plain luck, such as when a player has an unusually good season just before he becomes a free agent. In other cases, as former football coach Barry Switzer once remarked, “Some people are born on third base and go through life thinking they hit a triple.”

In baseball and in life, there are several reasons for the growing pay gap. In both, big organizations that play winner-take-all games tend to pay erratic superstars many times more than they pay players who reliably hit singles. For Team Nevada, technology has changed the value of certain skills, and the pace of education hasn’t been able to keep up. The erosion of the bargaining power of the middle class vis-à-vis “the owners” also has been a key factor, as unions represent a shrinking share of the workforce.

Tax policy also has played a significant role. From WWII until 1964, as American society became more equal and worker productivity soared, federal income taxes on the top 1 percent remained at very high rates. President Lyndon B. Johnson reduced this top rate significantly, especially for earned labor income.

President Ronald Reagan cut rates even further, and they have been cut even more since. Federal income taxes became much less progressive, inheritance taxes fell while payroll taxes rose, and capital income was taxed at lower rates than labor income. State and local taxes became increasingly regressive, and middle-class families in states like Nevada now typically pay twice the tax rate of those with much higher incomes.

At what point do we call foul? Part of the social contract in the United States is that we all should have the opportunity to improve ourselves, and hard work should pay off. Those who benefit from the system the most should give back, and opportunities should be extended to those at the lower end who are willing to work hard.

Part of the Legislature’s job is to ensure we maintain that social contract for all Nevadans. Nevada is only going to get ahead if all our players are on the same team and regular folks have an incentive to keep hitting singles. An increasingly global economy should motivate Nevada’s policymakers to strengthen workforce development and build a stronger higher education system that will prepare Nevadans to meet technological and global changes head on. Instead, our legislature underinvests in training and undermines the ability of workers to get better wages, as if “the owners” were the only ones that mattered.

Baseball shows us that success comes from hard work and sacrifice, but also from having opportunities. Nevada’s middle class steps up to bat every day for the financial security of their families and their future. It is fair to ask our Legislature to do everything they can for the home team.

Kate Marshall is the former state treasurer. Elliott Parker is a professor of economics at UNR.