For the past 30 years productivity has grown by 80%, as measured by economists.  Economist’s also think that income gains from this growth will be enjoyed by all productive members of a society.  Actually, ‘think’ is probably the wrong word.  ‘Assume’ is probably more accurate.

It’s been a bad assumption.

Lawrence Mishel provides the facts over at the Economic Policy Institute.

Income inequality has grown over the last 30 years or more driven by three dynamics: rising inequality of labor income (wages and compensation), rising inequality of capital income, and an increasing share of income going to capital income rather than labor income. As a consequence, examining market-based incomes one finds that “the top 1 percent of households have secured a very large share of all of the gains in income—59.9 percent of the gains from 1979–2007, while the top 0.1 percent seized an even more disproportionate share: 36 percent. In comparison, only 8.6 percent of income gains have gone to the bottom 90 percent” (Mishel and Bivens 2011).

A key to understanding this growth of income inequality—and the disappointing increases in workers’ wages and compensation and middle-class incomes—is understanding the divergence of pay and productivity. Productivity growth has risen substantially over the last few decades but the hourly compensation of the typical worker has seen much more modest growth, especially in the last 10 years or so. The gap between productivity and the compensation growth for the typical worker has been larger in the “lost decade” since the early 2000s than at any point in the post-World War II period. In contrast, productivity and the compensation of the typical worker grew in tandem over the early postwar period until the 1970s.

Productivity growth, which is the growth of the output of goods and services per hour worked, provides the basis for the growth of living standards. However, the experience of the vast majority of workers in recent decades has been that productivity growth actually provides only the potential for rising living standards: Recent history, especially since 2000, has shown that wages and compensation for the typical worker and income growth for the typical family have lagged tremendously behind the nation’s fast productivity growth. This paper uses data from EPI’s upcoming The State of Working America, 12^th Edition (Mishel, Bivens, Gould, and Shierholz 2012) to document and explain these trends, particularly those of recent years.

Beezer here.  Yet more data that shows the system is somehow broken.  Income is flowing up towards the top of the income pyramid, especially to the very tip top .01%!  Based on the chart above, the divergence began sometime around 1970.  There is no consensus about what’s causing the divergence, but there is no question there’s a divergence.  My view is there’s more than one reason.  One is the loss of bargaining power by labor.  Another is the gaming of the tax system so that not only are the wealthy grabbing most of the gains, they are being allowed lower tax rates and specific tax avoidance tools too.  Another is probably the loss of manufacturing jobs which would have provided employment that paid living wages.  That I blame on a government indifferent to employment and labor issues.

Tags: Economic Policy Institute, Income Inequality, Lawrence Mishel, Productivity Gains

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