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Friday, April 7, 2017

Re: [CCDS Members] EPI: Josh Bivens and Lawrence Mishel: Understanding the Historic Divergence Between Productivity and a Typical Worker’s Pay

Hi Mike:

Correct--- "productivity" in management-ese simply means speedup. But it has a technical meaning in economics that means: the real source of economic growth -- that is, total increase in  wealth - creation per worker- in a market economy. Ironically, or perhaps dialectically, the substitution of capital for labor over time is both a key economic source AND consequence of both industrial worker bargaining power and its struggle to destroy itself as an enslaved class,  under capitalism. This phenomenon was still in its infancy when Marx, Ricardo and Adam Smith and other classical economists were more concerned about the obvious countervailing immiseration tendencies of capitalism, very visible and naked in early days -- not just early days!--alongside capitalism's epochal  rending of the ancient feudal order. 

the longer range data correlation of rising productivity and real wage increases is a very strong one, and divergences are correlated with greater social and economic disorder. Calling the correlation causal is tempting. However any real link between them must also be intricately entangled with social, cultural, national, environmental, class,  and political environments in which the elemental forces unleashed by the circulation of commodities and capital (capitalism) emerge and grow.

There are serious problems, however, in accurately measuring "productivity", especially in the area of services and intangible products, arising from the fact that the latter are, in economic theory, what Paul Samuelson called "squshy" commodities.  They don't work like a traded physical commodity -- they can be cheaply -- almost freely in any global scale sense -- copied. 

That's just one of a number of things messing up the theories of growth -- why productivity is not rising faster than regular economic surveys are capturing; why almost all the wealth growth since about 1973 has been captured by the billionaires. Does a global fundamental slowing of mass demand affecting the "growth feedback loops" that make growth sustainable?; The billionaires have used part of that increased wealth to accumulate comparable political power -- both in elected offices, and within the regulatory institutions designed to regulate them.

But the big deal is this: The New Deal social contract -- active through Lyndon Johnson -- returned roughly comparable portions of national wealth to capital, and to labor. If GNP went up 1% (above population growth) -- wages and salaries at the median moved the same. There were huge movements of the left out, especially African Americans, for their just share of the American Dream of shared prosperity. 

How to establish again a principle of equity -- basically equal pay for equal work -- that governs the distribution of income as well -- is the basic economic question upon which social progress, including more socialism, depends.

On Wed, Apr 5, 2017 at 5:24 PM, Mike Beilstein <> wrote:
Hello John Case-
       I'll try to read this.  The figures don't come out in the email, but probably not essential.  I figured out long ago that "productivity" is a euphemism for "squeezing the workers."  For example, productivity of cotton picking in the early 19th Century in the US South more than doubled through the introduction of systematic torture that rewarded the fastest pickers with less pain, and incentivized the slower pickers with more.  I doubt that any planter ever considered raising the wages of slaves to match their improved productivity.  Productivity probably has several modern economic definitions, but it clearly is the rate of profit divided by rate of labor.  Increased productivity is simply more efficient squeezing the life out of workers.

Mike Beilstein
Corvallis, OR

On Wednesday, April 5, 2017 1:27 PM, John Case <> wrote:

This a must read for anyone organizing and mobilizing among the working class against Trump, or his successor. Understanding this subject matter in detail does NOT take a degree in economics. However it introduces basic concepts absolutely essential to understanding the scourge of rising inequality, and the inevitable threats the associated austerity directs against democracy, peace, and a livable world. It implicitly establishes a standard of economic equity that gives substance to new tax, public investment, and bargaining policies. Master this, and you will meet few equals in debate, whether in the board rooms or or union halls. 

After mastering this, don't forget to read Piketty's Capital, an even deeper look than this ...  😎😎

Understanding the Historic Divergence Between Productivity and a Typical Worker's PayWhy It Matters and Why It's Real

Report • By Josh Bivens and Lawrence Mishel • September 2, 2015
Raising America's Pay

Introduction and key findings

Wage stagnation experienced by the vast majority of American workers has emerged as a central issue in economic policy debates, with candidates and leaders of both parties noting its importance. This is a welcome development because it means that economic inequality has become a focus of attention and that policymakers are seeing the connection between wage stagnation and inequality. Put simply, wage stagnation is how the rise in inequality has damaged the vast majority of American workers.
The Economic Policy Institute's earlier paper, Raising America's Pay: Why It's Our Central Economic Policy Challenge, presented a thorough analysis of income and wage trends, documented rising wage inequality, and provided strong evidence that wage stagnation is largely the result of policy choices that boosted the bargaining power of those with the most wealth and power (Bivens et al. 2014). As we argued, better policy choices, made with low- and moderate-wage earners in mind, can lead to more widespread wage growth and strengthen and expand the middle class.
This paper updates and explains the implications of the central component of the wage stagnation story: the growing gap between overall productivity growth and the pay of the vast majority of workers since the 1970s. A careful analysis of this gap between pay and productivity provides several important insights for the ongoing debate about how to address wage stagnation and rising inequality. First, wages did not stagnate for the vast majority because growth in productivity (or income and wealth creation) collapsed. Yes, the policy shifts that led to rising inequality were also associated with a slowdown in productivity growth, but even with this slowdown, productivity still managed to rise substantially in recent decades. But essentially none of this productivity growth flowed into the paychecks of typical American workers. Second, pay failed to track productivity primarily due to two key dynamics representing rising inequality: the rising inequality of compensation (more wage and salary income accumulating at the very top of the pay scale) and the shift in the share of overall national income going to owners of capital and away from the pay of employees. Third, although boosting productivity growth is an important long-run goal, this will not lead to broad-based wage gains unless we pursue policies that reconnect productivity growth and the pay of the vast majority.
Ever since EPI first drew attention to the decoupling of pay and productivity (Mishel and Bernstein 1994), our work has been widely cited in economic analyses and by policymakers. It has also attracted criticisms from those looking to deny the facts of inequality. Thus in this paper we not only provide an updated analysis of the productivity–pay disconnect and the factors behind it, we also explain why the measurement choices we have made are the correct ones. As we demonstrate, the data series and methods we use to construct our graph of the growing gap between productivity and typical worker pay best capture how income generated in an average hour of work in the U.S. economy has not trickled down to raise hourly pay for typical workers.
Key findings from the paper include:
  • For decades following the end of World War II, inflation-adjusted hourly compensation (including employer-provided benefits as well as wages) for the vast majority of American workers rose in line with increases in economy-wide productivity. Thus hourly pay became the primary mechanism that transmitted economy-wide productivity growth into broad-based increases in living standards.
  • Since 1973, hourly compensation of the vast majority of American workers has not risen in line with economy-wide productivity. In fact, hourly compensation has almost stopped rising at all. Net productivity grew 72.2 percent between 1973 and 2014. Yet inflation-adjusted hourly compensation of the median worker rose just 8.7 percent, or 0.20 percent annually, over this same period, with essentially all of the growth occurring between 1995 and 2002. Another measure of the pay of the typical worker, real hourly compensation of production, nonsupervisory workers, who make up 80 percent of the workforce, also shows pay stagnation for most of the period since 1973, rising 9.2 percent between 1973 and 2014. Again, the lion's share of this growth occurred between 1995 and 2002.
  • Net productivity grew 1.33 percent each year between 1973 and 2014, faster than the meager 0.20 percent annual rise in median hourly compensation. In essence, about 15 percent of productivity growth between 1973 and 2014 translated into higher hourly wages and benefits for the typical American worker. Since 2000, the gap between productivity and pay has risen even faster. The net productivity growth of 21.6 percent from 2000 to 2014 translated into just a 1.8 percent rise in inflation-adjusted compensation for the median worker (just 8 percent of net productivity growth).
  • Since 2000, more than 80 percent of the divergence between a typical (median) worker's pay growth and overall net productivity growth has been driven by rising inequality (specifically, greater inequality of compensation and a falling share of income going to workers relative to capital owners). Over the entire 1973–2014 period, rising inequality explains over two-thirds of the productivity–pay divergence.
  • If the hourly pay of typical American workers had kept pace with productivity growth since the 1970s, then there would have been no rise in income inequality during that period. Instead, productivity growth that did not accrue to typical workers' pay concentrated at the very top of the pay scale (in inflated CEO pay, for example) and boosted incomes accruing to owners of capital.
  • These trends indicate that while rising productivity in recent decades provided the potential for a substantial growth in the pay for the vast majority of workers, this potential was squandered due to rising inequality putting a wedge between potential and actual pay growth for these workers.
  • Policies to spur widespread wage growth, therefore, must not only encourage productivity growth (via full employment, education, innovation, and public investment) but also restore the link between growing productivity and the typical worker's pay.
  • Finally, the economic evidence indicates that the rising gap between productivity and pay for the vast majority likely has nothing to do with any stagnation in the typical worker's individual productivity. For example, even the lowest-paid American workers have made considerable gains in educational attainment and experience in recent decades, which should have raised their productivity.

Growing together then pulling apart: Productivity and compensation in the postwar era

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. However, it is clear by now that this potential is unrealized for many Americans: Wages and compensation for the typical worker have lagged far behind the nation's productivity growth in recent decades, and this reflects a break in a key transmission mechanism by which productivity growth raises living standards for the vast majority of workers.
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 1948.1 Given that this group comprises over 80 percent of private payroll employment, we often label trends in its compensation as reflecting the "typical" American worker.

Disconnect between productivity and a typical worker's compensation, 1948–2014

YearHourly compensationNet productivity
1948 0.0%0.0%
1973 91.3%96.7%
199582.7% 150.8%

[Message clipped]  

John Case
Harpers Ferry, WV

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