"This Divergence Is At The Root Of Most American Economic Problems"

Some critical observations on changes in the US economy over the past two generations, which are certainly not for the benefit of the American middle-class worker, courtesy of the Economic Policy Institute.

Unpaid Productivity

Since 1979, hourly pay for the vast majority of American workers has not only lagged behind growth at the very top of the distribution and thus behind average wage growth, but has also diverged from economy-wide productivity, as shown in Figure M. This divergence is at the root of numerous American economic challenges (Bivens et al. 2014).

Labor productivity is a measure of the value of goods and services produced in the economy in an average hour of work. It rises steadily over time (except possibly during some recessionary years) as technology, capital intensity, and the educational attainment of the U.S. workforce increase. When labor markets are tight and/or policy provides bargaining power to workers through labor market institutions such as a protected right to unionize and robust minimum wages, productivity increases usually generate corresponding wage increases. From 1948 to 1979, this combination of healthy labor markets and institutional support of workers’ bargaining power was sufficient to keep wage growth for the majority of U.S. workers tracking productivity growth. Over this period, net productivity (productivity after accounting for depreciation of capital) grew by 108.1 percent, and the compensation of nonsupervisory production workers (who comprise roughly 80 percent of the private-sector workforce) grew by a comparable 93.4 percent. Thus, the typical worker shared in the economic spoils of increased productivity.

However, between 1979 and 2013, there was a marked decoupling of productivity and typical workers’ compensation. Over this span, productivity grew 63.5 percent, while hourly compensation of production and nonsupervisory workers grew just 7.7 percent. Productivity thus grew eight times faster than typical worker compensation, which means the prosperity created over this time period did not result in broad-based wage gains.

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So where did the prosperity come from, and who did it go to?

As noted above, wage growth from the 1940s to the early 1970s almost exclusively benefited the "90%" bucket of American workers. In other words, this is how the great American middle class was born. And, as both charts above and below shows, ever since the 1980s, the only group that has benefited from the increase in US labor productivity in the form of skyrocketing income growth, is the "1%."

We don't know what may have caused this dramatic divergence in the 1970s... but we have a good idea, one which we showed three months ago.

In retrospect, we find it so very ironic that gold is allegedly (if one listens to the media of course) one of the most hated substances among "respected" economists, and yet it is the destruction of the gold standard that enabled the serf-ization of US society, which has culminated with a record class disparity between the rich and poor unseen at any one time in human history, surpassing the Gilded Age, and going all the way back to the French revolution.