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Forum Post: Productivity–Pay Gap

Posted 2 years ago on Sept. 4, 2015, 11:28 a.m. EST by factsrfun (8837) from Phoenix, AZ
This content is user submitted and not an official statement

Updated September 2015

Most Americans believe that a rising tide should lift all boats—that as the economy expands, everybody should reap the rewards. And for two-and-a-half decades beginning in the late 1940s, this was how our economy worked. Over this period, the pay (wages and benefits) of typical workers rose in tandem with productivity (how much workers produce per hour). In other words, as the economy became more efficient and expanded, everyday Americans benefitted correspondingly through better pay. But in the 1970s, this started to change.

Disconnect between productivity and a typical worker’s compensation, 1948–2014 Year Hourly compensation Net productivity

1948–1973:Productivity: 96.7%Hourly compensation: 91.3% 1973–2014:Productivity: 72.2%Hourly compensation: 9.2% ChartData Note: Data are for average hourly compensation of production/nonsupervisory workers in the private sector and net productivity of the total economy. "Net productivity" is the growth of output of goods and services minus depreciation per hour worked. Source: EPI analysis of data from the BEA and BLS (see technical appendix of Understanding the Historic Divergence Between Productivity and a Typical Worker's Pay for more detailed information) Share Tweet Embed Download image Productivity–Pay Tracker Change 1973–2014: Productivity +72.2% Hourly pay +9.2% Productivity has grown 7.8x more than pay Updated September 2015

Since 1973, pay and productivity have diverged. From 1973 to 2014, net productivity rose 72.2 percent, while the hourly pay of typical workers essentially stagnated—increasing only 9.2 percent over 41 years (after adjusting for inflation). This means that although Americans are working more productively than ever, the fruits of their labors have primarily accrued to those at the top and to corporate profits, especially in recent years.

Why this happened—and how we can fix it Rising productivity provides the potential for substantial growth in the pay for the vast majority. However, this potential has been squandered in recent decades. The income, wages, and wealth generated over the last four decades have failed to “trickle down” to the vast majority largely because policy choices made on behalf of those with the most income, wealth, and power have exacerbated inequality. In essence, rising inequality has prevented potential pay growth from translating into actual pay growth for most workers. The result has been wage stagnation.

For future productivity gains to lead to robust wage growth and widely shared prosperity, we need to institute policies that reconnect pay and productivity, such as those in EPI’s Agenda to Raise America’s Pay. Without such policies, efforts to spur economic growth or increase productivity (the largest factor driving growth) will fail to lift typical workers’ wages.

Resources Understanding the Historic Divergence Between Productivity and a Typical Worker’s Pay: Why It Matters and Why It’s Real | September 2, 2015

This paper provides an updated analysis of the productivity–pay disconnect and the factors behind it, and explains the measurement choices and data sources used to calculate the gap.

Raising America’s Pay: Why It’s Our Central Economic Policy Challenge | June 4, 2014

Broad-based wage growth is the key to reversing the rise of income inequality, enhancing social mobility, reducing poverty, boosting middle-class incomes, and aiding asset-building and retirement security.

How to Raise Wages: Policies That Work and Policies That Don’t | March 19, 2015

Wage stagnation is not inevitable. It is the direct result of public policy choices on behalf of those with the most power and wealth that have suppressed wage growth for the vast majority in recent decades. Thus, because wage stagnation was caused by policy, it can be alleviated by policy.

2014 Continues a 35-Year Trend of Broad-Based Wage Stagnation | February 19, 2015

2014 was yet another year of poor wage growth for American workers. With few exceptions, real (inflation-adjusted) hourly wages fell or stagnated for workers across the wage spectrum between 2013 and 2014—even for those with a bachelor’s or advanced degree. Of course, as EPI has documented for nearly three decades, this is not a new story.

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20 Comments


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[-] 6 points by elf3 (3721) 2 years ago

It is a system of indentured servitude...the corporations we work for who are all invested in eachothers shareholdings also set our wages ...then set the prices we pay for commodities and needs...it is the equivalent of the railway back in the days of Carnegie ...setting outrageous prices at the company store. The workers were reliant on the store for needs while working on the rails...they didn't have a choice but to pay up...same as us today. Except now it is worse because it is being done on a massive societal and global scale...there is no escape...you must pay up to work ...you must work to pay up...and your wages go back in the pocket of the company store.

[-] 2 points by grapes (4987) 2 years ago

This land was made for you and me. There is an escape - an annual dividend check for shareholders of the U.S.- send every U.S. citizen of record on Memorial Day by July 4th every year the money that the [Non-]Federal [No-]Reserve had created out of thin air (Janet Yellen wants 2% inflation so the check amount should be 2% of all wealth owned by the U.S. shareholders). Independence Day can then be celebrated in earnest. Much federal bureaucracy to redistribute income may be simplified to do away with much of the paper pushing. Money wants to be free!

[-] 3 points by MattHolck0 (3867) 2 years ago

a guaranteed basic income means people can spend money on jobs they want to get done

[-] 4 points by grapes (4987) 2 years ago

Yes, indeed.

The annual dividend payout will be a perennial quantitative easing (rather than done through the national banks which have basically strangulated any fast-paced economic recovery) that will directly stimulate businesses every year and create new jobs that people want to get done.

These new jobs can employ the former paper pushers in the federal government laid off due to the simplification of the income redistribution system. It may even be possible to abolish the income taxes altogether and free up all those enforcers at the IRS, tax attorneys at law firms, accountants and tax advisors at tax accounting companies, and income tax compliance officers at corporations.

Do away with income taxes, get annual dividend checks, liberate the IRS workers enslaved by those boring jobs, redeploy them to serve people, etc. All in all, it seems to be an earthly paradise!

[-] 1 points by factsrfun (8837) from Phoenix, AZ 2 years ago

and it is generational in nature I once put it this way,

"Our money begets, money and we begat it to our children, so you better learn to like them and remember all their names."

[-] 1 points by grapes (4987) 2 years ago

Pay your workers with nearly counterfeit (abused fungibility) money and you can pay them without really doing so. Fools work, Wise keep!

[-] 1 points by grapes (4987) 2 years ago

Examine a chart of inflation as measured through the Consumer Price Index. Its impulse increase in 1973 and later correlates very well with stagnant real wages. In 1973, the first class U.S. postage stamp cost 8 cents. How much is it now? 49 cents!

When did the U.S. get off of the gold standard? When did the U.S. almost get into a nuclear war because of the Middle East conflict between Israel and the seven Arab States called the Yom Kippur war? When did the U.S. get hit by Saudi Arabia's Oil Embargo and cars form gas lines? When did the U.S. (Non-)Federal (No-)Reserve get the free rein to "print our way" out of the onus burden of the debts of the Vietnam war which had turned out NOT necessary to halt Communism's spread into southeast Asia? Does the Iraq war ring the bell of déjà vu?

Once the eelites had discovered the nearly endless source of goodies from creating money out of thin air, the real wage level of workers became condemned to its namesake, level, that is! Think about how nominal wages could have increased so much from 1973 and yet why doesn't one feel living anywhere close to six times (from U.S. stamp: 49 cents/8 cents) better than in 1972? Inflation!

Money-printing is a nearly endless pleasantry until the chickens come home to roost. What is really SCARY these days is the sheer size of the total debt pyramid worldwide. It had started with easy money because the bonds and the subsequent credit creation could be created with the only limit of Confidence (Yes, it is a con game since 1973). Now, quantitative easing has gone GLOBAL!

Germany went through hyperinflation so its aversion of contracting debts afterwards is a good guide as to whether others want to follow its footsteps. It took the Nazis to shake the world to its senses from its hogging in the money trough.

[-] 1 points by factsrfun (8837) from Phoenix, AZ 2 years ago

As incoherent as ever grapes, BTW US postage is a hell of a bargain.

[-] 2 points by grapes (4987) 2 years ago

You may have missed the point. I am using U.S. first-class stamp cost over time as a commonly known and fairly accurate gauge of inflation over the same time period. I am not complaining about the apparent rise of the cost but I am complaining about the general illiteracy of our working stiffs about inflation. That is the reason why they can sink year-in and year-out deeper into the hogwash while getting joy from the ever higher numbers on their paychecks. Fools work, Wise keep!

[-] 1 points by factsrfun (8837) from Phoenix, AZ 2 years ago

Who's getting higher numbers on their paychecks?

I'm pretty sure that's been an issue for a few decades even spurred a pretty big movement back in 2011.

[-] 1 points by grapes (4987) 2 years ago

Nearly everyone is getting higher numbers on their paychecks since 1973. If you are the only one excluded, you certainly have my sympathy. I will add a zero to your numbers to make them higher. What did Janet Yellen say this week? She pities the workers whose wages have not gone up so she wants inflation to go higher from 0.2% to 2% to make the economy grow so that wages can play catchup.

Why would you with the same paycheck amount be better off with higher costs when you buy your supplies? If you believe that you would be better off, you need to have your head examined, as Yoda (Bob Gates) said.

[-] 1 points by factsrfun (8837) from Phoenix, AZ 2 years ago

He who deals in absolutes, deals with insanity.

Wages have lagged far behind productivity and it has created huge problems and threatens the survival of the democracy.

Inflation is of little impact to issues really.

[-] 0 points by grapes (4987) 2 years ago

He who does not deal with absolutes loses track of reality.

Average wages have gone up many times in numerical form since 1973 so there is absolutely no problem (aside from inflation which you discounted as being of little impact). Productivity gains since 1973 contributed greatly to the average wealth. The U.S. is therefore far better off, left?

Janet Yellen really said to the wage earners, "It is better for you to have your wages cut by 2% rather than the 0.2% now because that will allow your bosses to give you raises." It is financial repression to serve the eelites. Look at the actions on Wall Street. Stocks went up in response to her statement. How much stocks do YOU own?

Let me tell you, wage earners. You are being very patriotic because with 2% you will bail out more the U.S. government which is the greatest debtor ever of all time and it cannot afford to have interest rates go up. There is the debt overhang so forget about normal growth resuming anytime soon (until 2008+23=2031 on the average according to the paper).

The U.S. has not even paid back its debts from its Revolutionary War. Does anyone really think that the U.S. will pay back its national debts ever? Don't worry, we still own the printing presses for the U.S. dollar!

[-] 1 points by factsrfun (8837) from Phoenix, AZ 2 years ago

You start off with misinformation either you are ignorant or a lair, wages have NOT gone up "many times" since 1973 as the chart shows wages have gone up only 9.2% while production has increased 72.2%.

You have long ago lost track of reality.

[-] 1 points by grapes (4987) 2 years ago

Take a class called Economics 101 in college or you should have gone to a better high school where they provide such class. The book, "Innumeracy" is good for understanding the delusions people get from numbers.

Show me the actual link where you got the chart. We need to nail down whether the wages' increase by 9.2% is inflation-adjusted. By the sheer magnitude of it, I contend that it was an inflation-adjusted number.

The middle class was put on a down-escalator working hard to get to the better higher level for decades. Recently, Janet Yellen was saying that the down speed of 0.2% is too slow for their well-being, 2% being better.

I got raise long time ago that exceeded the 9.2% in a single year. I don't think that I was several standard deviations above the mean in performance that I could get more than other people got in several decades. That number must be inflation-adjusted or real (in economics parlance) and not nominal.

[-] 1 points by factsrfun (8837) from Phoenix, AZ 2 years ago

oh I must have forgotten the whole word is reflected by you,

If you need to nail something down, have you heard of this thing called Google?

The chart is sourced take a look if you have questions.

[-] 1 points by grapes (4987) 1 year ago

As expected, the number is inflation-adjusted: "That this has not always been the case is seen in Figure A, which presents the cumulative growth in both net productivity of the total economy (inclusive of the private sector, government, and nonprofit sector) and inflation-adjusted average hourly compensation of private-sector production/nonsupervisory workers since 1948."

Persistent inflation was the culprit creating stagnant real wages since the 1970s. Only the monetary authorities have the capability to produce long-term persistent inflation by increasing the money supply. In the case of the U.S., it is the Federal Reserve, the nationally chartered banks owned institution with the name of two lies. Workers got raises with strings attached to be yanked back in real (inflation-adjusted) terms through persistent inflation.

[-] 1 points by factsrfun (8837) from Phoenix, AZ 1 year ago

Both figures are adjusted for inflation, as far as I can tell, but inflation in no way diminishes the central point that worker's pay began to fall behind rises in productivity at around the same time that Ronald Reagan broke the Air Traffic Controllers Union sending the single that it was open season on unions across the nation.

Of course if you had been paying attention or understood a damn thing you would know this.

[-] 2 points by grapes (4987) 1 year ago

I know many more damned things than other people because I strive to see into the past, the present, and the future with probabilities and statistics. Let me make this very clear: there IS a price on everything and everything IS subject to the equilibrium or disequilibrium of supply and demand.

Striking Air Traffic Controllers could be fired because there were enough scab workers so supply exceeded demand, the "legality" of the strike being a convenient cover. Ronald Reagan was implicated in subterfuges like the Iran-Contra scandal regardless of legality because Reagan's demand was great.

My central point is that if workers do not know or want to spend the effort to know the difference between real and nominal pay, they deserve what they get. Even the statues of limitation would have expired after 42 years. I sympathize and sigh but only a change of mind can cure a mind problem. Not everything is lost though if they subscribe to my faith that everything is physical and discrete. Minds take in information such as pain, deprivation, disappointment, loss of hopes, etc. so minds can change!

[-] 1 points by grapes (4987) 1 year ago

Take a really close look at where the two curves start to diverge in your graph and the date of August 3, 1981 of the air traffic controller strike. 1973 precedes 1981, doesn't it? Metaphorically, 1973 was analogous to the triggering of the French Revolution and 1981 was analogous to the defeat of Napoleon in the Battle at Waterloo. Then real wage suppression started getting mindspace after OWS had started so 2011 was analogous to Zeitgeist of 1848.

Why did the air traffic controllers ask for such big raises and benefit increases in 1981? INFLATION of the 1970s, ... which was a hellish economic decade because the eelites of the U.S.A. had rediscovered the antifreeze sweetness of the new fiat currency after getting off of the gold standard and gulped that antifreeze in ecstasy. No problem, more credit to the rescue!

As long as the Saudis agree to keep their oil profits in U.S. dollars, we will protect them in exchange for our going back anytime to the antifreeze trough to gulp more fiat currency depreciation. It IS a cozy arrangement so what if Saudis fund their religious schools to preach hatred against us, the infidels. Do you think we have leaders who care about whether the oil we used was tainted by subterfuges, oppression, hatred, wars, insurgencies, abuses, dictatorships, diseases, poverty, deaths, blood, blood, blood, endless flow of human blood?

I could not even get my people to understand why inflation is important. It is low now due to the drop in oil prices but do you know why they are low? Will those reasons change?