Probably like you, I have grown tired of efforts to read the tea leaves in reverse and see why President Trump and the Republican Party did so well in the recent presidential election. A lot of these explanations seem to say more about the interests of the person writing them than about the election, per se (e.g., “It reflects a rejection of the global order.”)
But let’s consider one perspective that appears plausible and reflects what actual voters say. That is the notion that inflation so vastly affected the buying power of the average worker that it has made their lives seriously more difficult.
I was pretty sure I would find, when I looked into this, that the story was less about inflation and more about wages not keeping up with rising prices. That is, real wages and purchasing power were down. I suspect we would be less unhappy if prices were rising but our pay was rising faster. That is not what I found.
Our colleagues at the Federal Reserve spend a lot of time keeping track of these things, and the St. Louis Bank has focused on tracking real wages—that is, adjusted for inflation. Before showing you what I found, here are the caveats. These are median wages, which are those in the 50th percentile rather than the average or mean wages, which has the benefit of protecting against the fact that one Elon Musk with a $1 billion paycheck would pull the mean up for everyone. The median is a better measure to see what is going on for the typical person. The measure reports weekly earnings, which includes the effect of overtime, on the one hand, and short hours on the other. In boom times, weekly earnings are likely to rise more than hourly wages and the reverse is true in downturns.
If the numbers are going down, as I suspected, that would mean our purchasing power is falling and we are objectively worse off; if it is rising, the reverse. So, what do we see? If we are looking at everyone in the workplace, it turns out I was exactly wrong.
First, the background: The American economy suffered a big decline starting at the end of the 1980s, from which we did not recover until the 2000s. From there, we bumped along until 2015 when things got noticeably better and then rocketed up to the highest level in history in 2020.
Why 2020? That was the start of the pandemic, and the government issued subsidies to keep people and businesses afloat. The average person was remarkably better off; again, you and I might not have experienced it because those getting the biggest subsidies were at the lower part of the distribution.
Those gains fell sharply when the subsidies were removed, but still, we were far better off than we were in the years before the pandemic, and the trend has been up. If we take out the pandemic years, we see more or less a straight line of improvement since 2015, something quite remarkable that has gotten almost no attention.
What HR can learn
So, how do we explain the fact that in 2024 we are, on average, much better off in terms of our real income than at any time in history? (Let alone before the pandemic.) And yet, a great many people felt that they were dramatically worse off. Let’s assume they really did feel that way and were not just being told they should feel that way.
The answer, and a lesson for human resources, comes from what sociologists have long known: It is your relative position, not so much your absolute one, that matters to your perceptions. Even though we are—in real terms—much better off than at any time before, we are worse off than four years earlier. That drop from 2020 to 2024 is huge, even bigger than the catastrophic decline from the 1970s, and it happened faster.
Another piece of the electoral story comes from seeing how the picture differs for different demographic groups. Of the major categories, the group that has done the worst since the pandemic was white men. At the low point in 2023, this group’s real wages were the same as in 2016. This also is the group that most strongly voted Republican—or, as some would put it, against the Democrats.
Setting aside any political lessons, what is the punchline for management? It is a reminder that taking something away is really, really painful for people. We are focused on what just happened rather than the longer-term trend, even if that longer-term might be the more important story.
It is also a reminder of the “What have you done for me lately?” story: Don’t expect people to remember the big improvements, even in the recent past. But we can also influence how people feel about their situation by shaping their comparisons and by reminding them. Employers have a much greater ability to do that than do politicians. However, I wonder how often we are really doing that.
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