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Why So Few Celebrate Our Rising Productivity

So few Americans are cheering America’s rising productivity, a new report suggests, because so few Americans are sharing in the new wealth that boosts in productivity have been creating over the past three decades.

A brick factory makes 10,000 bricks a day. But then the factory happens on a new brick-making technique, reorganizes production, and starts making 15,000 bricks a day, with the same workers working the same hours.

Over the course of the 1950s and 1960s, Americans shared the wealth that higher productivity created.

Those workers have, in economic terms, become more “productive.” Who should benefit from this increased productivity? Should the benefits flow to the factory owner, as higher profits, or to the workers themselves, as higher wages? Or should that increased productivity translate into lower prices for consumers?

Or should all of the above — owner, workers, and consumers — benefit?

America’s answer in the decades right after World War II: all of the above.

Corporations did just fine in the immediate postwar decades as the nation’s productivity rose steadily. But so did average Americans, as both workers and consumers. Over the course of the postwar years, Americans shared the wealth that higher productivity created. The nation would experience the greatest epoch of middle class prosperity the world had ever seen.

What happened next? That’s the story that Lawrence Mishel, the president of the Washington, D.C.-based Economic Policy Institute, tells in his just-released preview on productivity from the upcoming new edition of EPI’s biannual economic factbook series, The State of Working America.

Mishel tells his story with lots of useful numbers. But we can sum up his data in just three quick words. The sharing stopped. Since 1973, average Americans have realized little benefit from rising U.S. economic productivity.

Average U.S. hourly pay increased by just 39.2 percent between 1973 and 2011, less than half the increase in productivity.

Between 1973 and 2011, that productivity most certainly did rise substantially, by 80.4 percent. That increase, EPI’s Mishel notes, would have easily been “enough to generate large advances in living standards and wages if productivity gains were broadly shared.”

But those gains would not be shared. Average hourly compensation in the United States increased by just 39.2 percent between 1973 and 2011, less than half the increase in productivity.

This 39.2 percent figure actually overstates the increase in compensation average Americans realized — because this hourly compensation total includes the pay of all “employees,” from CEOs to day laborers.

Median U.S. workers — the nation’s most typical workers — didn’t come close to that 39.2 percent. Their pay increased only 10.7 percent from 1973 to 2011.

We have, Mishel explains, two different dynamics at play here. That “wedge” between productivity (up 80.4 percent) and overall hourly compensation (up 39.2 percent) reflects “an overall shift in how much of the income in the economy is received in wages by workers and how much is received by owners of capital.”

Average American working people simply no longer have the economic and political clout they held back in the middle of the 20th century.

Between 1973 and 2011, owners clearly won. Much more of the gains from productivity went to profits and dividends than to wages and salaries.

The second wedge — the gap between “average” hourly earnings (up 39.2 percent) and median hourly earnings (up 10.7 percent) — reflects the exploding gap between executive pay and typical worker pay. Between 1973 and 2011, CEOs clearly won. Their sky-high rewards jacked up our “average” pay figures.

And what about consumers? Average Americans as consumers, like average Americans as workers, haven’t done so well since 1973. Workers have suffered, Mishel relates, as “the prices of things they buy (i.e., consumer goods and services) have risen faster than the items they produce.”

What accounts for all these “wedges” since 1973? Average American working people simply no longer have the economic and political clout they held back in the middle of the 20th century. The shrinking percentage of Americans who belong to trade unions has left collective bargaining a rarity in the private sector.

Sign up for To MuchAnd without strong unions on the nation’s political stage, basic labor standards — like the minimum wage — have lost much of their capacity to guarantee workers a fair share of the wealth that increasing productivity creates.

So what does the future hold? Probably continued higher productivity. But that higher productivity, EPI’s Mishel reminds us, won’t translate into better lives for all Americans — unless we share the wealth that higher productivity creates.

  • Michael S

    This shows me that the workers at the bottom 20% are becoming less and less revalent in the wage price spiral.  What needs to happen is more workers need to attain jobs in demand and skilled  Jobs.  Minimum wage has just reduced the amount of jobs available, we’ve seen that recently;  Important jobs will pay more.  If anyone off the street can do the job its worth less;  Like any supply & demand scenario

    • ger320

      You are assuming that once every one is highly trained, there will be no need for the truck driver or the janitor or the window washer any more.

      • Jerome Bigge

        It appears technologically possible to create “self driving vehicles” (Google has been quite successful with their cars).  And trains are more energy efficient than trucks.  Which leaves janitors and window washers, both being jobs that can be done by any physically capable person.  As I’ve already noted, any job that is done on a computer can be done almost anywhere on Earth by an educated person.  The only “safe” jobs are those that can’t be performed on a computer, but have to be done “here”.  Your auto mechanic has to be “here”.  Your plumber, electrician, carpenter, all have to be “here”. Your doctor doesn’t have to be “here” since we already have perfected two way video and audio.  Try out Skype and you’ll see.  So a doctor in India can have a nurse here take your blood pressure and heart beat, and with a change in our laws, also write a prescription for medication too.  As a matter of fact, we also have developed the technology to perform surgery via a system of remote control.  So your surgeon in another decade or so may be half way around the world from you. Bandwidth is less and less of a problem with fiberoptic connections.  Plus someone half way around the world can now control a robotic device.  Our military drones are controlled here in the USA even though they operate in Afghanistan and Pakistan.  No doubt a robot tank could be run on the same principle.  What we used to consider “Science Fiction” is becoming more and more “real” today…

    • Jerome Bigge

      China and India have millions of college educated people who can the same job that a college educated person here in the USA can do.  The difference is that the Chinese and Indians can do the same job for a lot less money.  We send x-rays to India (via the Internet) to be “read” there because they work for less than Americans. Same thing is true in a surprisingly wide range of fields.  Realistically, the only “secure” jobs here in the USA are those “that have to be done here”.  And a lot of these type of jobs are in the skilled trades.  If it can be done on a computer, it can be done anywhere there is Internet access and educated people to do the task.

  • Zane

    The dirty dark secret of “productivity”  is that it is not all technological advance.  Part of it if the result of big corps laying off workers and making the rest work harder to pick up the slack.  In the current recession it’s easy for employers to abuse their workers, who desperately want to keep their jobs, by making them do the work of the people who just got laid off.  Not because there is less work to do; they can just get away with it.

  • Jerome Bigge

    When “productivity” is measured, does this apply just to produces manufactured here in the USA or does it apply to American companies who have outsourced their production outside the USA to somewhere with much lower labor costs?  For example, should we consider Apple to be an “American” company or a “Chinese” company.  Their products are produced in China and sold here in the USA to Americans.  So is Apple “American” or “Chinese”?

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