Wednesday, September 09, 2015

Productivity Rises Much Faster Than US Average Wages

Here's an exciting article by Josh Bivens and Lawrence Mishel for all you economics nerds!  It talks about the possible reasons why the pay of a typical American worker has not risen as much as the overall productivity tells us it could have risen.   Look at the graph:

What's important in that graph are its two halves, divided by the vertical line.  Before the time marked by the vertical line productivity and the compensation of a typical worker went pretty much hand-in-hand:  When productivity* rose, workers' real earnings rose.  After that date, not so much.  The extra productivity which could have enabled higher average earnings instead enabled something else.

Bivens and Mishel argue that this "something else" is higher incomes for the owners of capital and for a small group of very highly paid workers, such as the CEOs in the financial sector.  In short, average real earnings could have risen considerably more, but they did not.  Instead, the income accruing to capital and the highest earners grew disproportionately.

What's behind that decoupling of average earnings growth from productivity growth?  The article notes that one factor consists of

 ...the passage of many policies that explicitly aimed to erode the bargaining power of low- and moderate-wage workers in the labor market.
I'm not certain if outsourcing and globalization is included in those policies, but its effect on reducing the bargaining power of workers in this country has certainly been much greater on low- and moderate-wage workers than those earning the high salaries.

*Here productivity is defined as:

Productivity is simply the total amount of output (or income) generated in an average hour of work. As such, growth in an economy’s productivity provides the potential for rising living standards over time.
The Bivens-Mishel article goes into a lot of detail about various theories that might explain the divergence shown in the above graph.