There is a very important chart making the rounds of the policy wonks that I tripped over a few months back that I found very disturbing. It is bound to be Exhibit A in the election this fall. It was developed by the Economic Policy Institute and shows U.S. productivity and wage growth 1948 – 2012. The chart shows productivity growth for the overall U.S. Economy over this period climbing at a steady, even pace – amazingly consistent over time – for over five decades. Then it shows median wage growth which climbs in tandem with productivity growth 1948 – 1978, but then goes almost completely flat 1979 – 2012.
Here’s the chart that JTO is describing (provided by JTO) from the Economic Policy Institute. These figures and all others that we post are captured by a $20 program that you can buy on the Internet. It’s called “Faststone Capture“. It is very easy to download and intuitive to use. JL
Legend to Figure A:
I was literally stunned by this – and disturbed – when I realized it’s implications. This is highly aggregated, very long term data. Productivity growth, which is measured simply as growth in GDP divided by the number of people in the labor force,is the measure of wealth creation in the economy. thought of simply, if GDP consisted of the manufacture of ten automobiles, produced by 10 workers, and Henry Ford figured out a way to build 11 automobiles with the same 10 workers, then GDP growth and Productivity growth would both be 10%. (Measurement gets more complicated than that, but thats the idea. So productivity growth is both the means and the measure of the increased output of our economy.
So what has happened is that something changed in our economic system so that while the benefits of productivity growth were shared by workers from 1948 – 1978, after this, they quickly shared less and less in the continued productivity (i.e. Wealth) gains in the overall economy.
So then I saw this chart again, and someone had added a second vertical axis opposite the x axis to show labor union membership, and this showed the decline in the portion of the work force belonging to unions and guess what? Beginning in 1978, union membership began declining at an accelerated rate in correlation with flattened real wages 1978 – 2010.
So it makes me think of the German model of manufacturing policy. In the 1970?s the Germans were in the same predicament as the U.S. with a large, highly paid,highly skilled manufacturing work force with strong political influence and facing strong competition from Japan, especially in the Auto/Steel/Glass industry at the center of their industrial sector. They worked with their unions to develope a new industrial policy that focused on retaining precision and technology manufacturing and retraining unskilled workers to skilled positions. So while Germany has lost manufacturing jobs steadily, it has retained a strong manufacturing base with better skills and wages. In the U.S., by contrast, we had the investor class – the Bain Capitals of the world – simply take these companies over, chew them up, and spit them out. Or, as with GE, simply gradually move their operations overseas to take advantage of cheap labor and low or nonexistent environmental standards.
Why can’t we do better than this?
From the Economic Policy Institute (JL)