Understanding the Historic Divergence Between Productivity and a Typical Worker’s Pay: Why It Matters and Why It’s Real

“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.”

Source: Understanding the Historic Divergence Between Productivity and a Typical Worker’s Pay: Why It Matters and Why It’s Real

I researched this topic, because of a graph on my Facebook page. Why did hourly wages stop rising around 1979? It turns out, Income Inequality is caused by income inequality. see below for support. See below for support.
“There are three important “wedges,” or factors, between net productivity growth and the paychecks of typical American workers, paychecks that provide the foundation for their standards of living. As shown in Figure B, average hourly compensation—which includes the pay of CEOs and day laborers alike—grew just 42.5 percent from 1973 to 2014, lagging far behind the net productivity growth of 72.2 percent. In short, workers, on average, have not seen their pay keep up with productivity. This partly reflects the first wedge: an overall shift in how much of the income in the economy is received by workers in wages and benefits, and how much is received by owners of capital. As shown below (in Figure C), the share going to workers decreased, especially after 2000. We sometimes refer to this as the “loss in labor’s share of income” wedge.

The second wedge, shown in the gap between the bottom two lines in Figure B, is the growing inequality of compensation, reflected in the fact that the hourly compensation of the median worker grew just 8.7 percent, far less than average worker compensation. Most of the growth in median hourly compensation occurred in the short period of strong recovery in the mid- to late 1990s; excluding 1995–2000, median hourly compensation grew just 2.6 percent between 1973 and 2014.

A third wedge important to examine but not visible in Figure B is the “terms-of-trade” wedge, which concerns the faster price growth of things workers buy relative to the price of what they produce. This wedge is due to the fact that the output measure used to compute productivity and net productivity is converted to real, or constant (inflation-adjusted), dollars based on the components of national output (GDP), while the compensation measures are converted to real, or constant, dollars based on measures of price change in what consumers purchase. Prices for national output have grown more slowly than prices for consumer purchases. Therefore, the same growth in nominal, or current dollar, wages and output yields faster growth in real (inflation-adjusted) output (which is adjusted for changes in the prices of investment goods, exports, and consumer purchases) than in real wages (which is adjusted for changes in consumer purchases only). That is, workers have suffered worsening terms of trade, in which the prices of things they buy (i.e., consumer goods and services) have risen faster than the prices of items they produce (consumer goods but also capital goods). Thus, if workers consumed investment goods such as machine tools as well as groceries, their real wage growth would have been better and more in line with productivity growth. We sometimes refer to this terms-of-trade wedge as the difference between “consumer” and “producer” price trends.”

Is Vast Inequality Necessary? – by Paul Krugman, The New York Times

“Don’t say that redistribution is inherently wrong. Even if high incomes perfectly reflected productivity, market outcomes aren’t the same as moral justification. And given the reality that wealth often reflects either luck or power, there’s a strong case to be made for collecting some of that wealth in taxes and using it to make society as a whole stronger, as long as it doesn’t destroy the incentive to keep creating more wealth.Continue reading the main storySign Up for the Opinion Today NewsletterEvery weekday, get thought-provoking commentary from Op-Ed columnists, The Times editorial board and contributing writers from around the world.And there’s no reason to believe that it would. Historically, America achieved its most rapid growth and technological progress ever during the 1950s and 1960s, despite much higher top tax rates and much lower inequality than it has today.In today’s world, high-tax, low-inequality countries like Sweden are also both highly innovative and home to many business start-ups. This may in part be because a strong safety net encourages risk-taking: People may be willing to prospect for gold, even if a successful foray won’t make them quite as rich as before, if they know they won’t starve if they come up empty.So coming back to my original question, no, the rich don’t have to be as rich as they are. Inequality is inevitable; the vast inequality of America today isn’t.”

Source: Is Vast Inequality Necessary? – The New York Times

America the Unfair? – Nicholas Kristof, The New York Times

“Martin Gilens of Princeton University and Benjamin I. Page of Northwestern University found that in policy-making, views of ordinary citizens essentially don’t matter. They examined 1,779 policy issues and found that attitudes of wealthy people and of business groups mattered a great deal to the final outcome — but that preferences of average citizens were almost irrelevant.“In the United States, our findings indicate, the majority does not rule,” they concluded. “Majorities of the American public actually have little influence over the policies our government adopts.” ”

Source: America the Unfair? – The New York Times

Privilege, Pathology and Power The superrich live in their own reality. That’s a problem when the monstrously self-centered influence elections and policy. nytimes.com|By Paul Krugman

Paul Krugman starts, “Wealth can be bad for your soul. That’s not just a hoary piece of folk wisdom; it’s a conclusion from serious social science, confirmed by statistical analysis and experiment. The affluent are, on average, less likely to exhibit empathy, less likely to respect norms and even laws, more likely to cheat, than those occupying lower rungs on the economic ladder.”

The superrich live in their own reality. That’s a problem when the monstrously self-centered influence elections and policy.
nytimes.com|By Paul Krugman