December 8, 2012

WHAT GORILLA?:

The No Good, Very Bad Outlook for the Working-Class American Man : The U.S. economy is still a powerful engine, but workers aren't seeing the benefits, less-educated men are struggling, and the rich have disconnected from everyone else. (Jonathan Rauch, December 5, 2012, National Journal)

Begin with Chart 1. It shows one of the most basic of all economic relationships, that between productivity and hourly compensation. Productivity measures the value of the output (brake pads, stock transactions) a worker produces in, say, a day; compensation is a measure of earnings that includes the value of benefits such as health insurance. The chart also shows compensation for all U.S. workers and specifically for workers in production and nonsupervisory jobs--blue-collar and clerical jobs, for example.

Infographic

For decades, productivity and compensation rose in tandem. Their bond was the basis of the social compact between the economy and the public: If you work harder and better, you and your family will be better off. But in the past few decades, and especially during the past 10 years or so, the lines have diverged. This is slippage No. 1: Productivity is rising handsomely, but compensation of workers isn't keeping up.

True, compensation is still rising, on average. But the improvements are spotty. Production and nonsupervisory workers--factory, retail, and clerical workers, for example--saw productivity gains disappear from their paychecks much earlier and got hit harder than did supervisors and professionals. Over the past 30 years or so, their compensation has hardly risen at all.

"This is something that has been happening and building for years and is now really rooted in the economy, and it's vicious," said Lawrence Mishel, president of the Economic Policy Institute, a liberal think tank in Washington. "There's a remarkable disconnect. The problem isn't a lack of the economy producing sufficient income to make everybody's living standards improve--it's that the economy is structured so that the majority don't benefit." Or, to state the point more cautiously, the majority doesn't benefit from productivity gains very much--certainly, less than our parents and grandparents did.
Notice that recessions and expansions barely register in the trend lines. Long-term, gradual forces, rather than short-term jitters, are at work. Charts 2 and 3 hint at what those might be. Chart 2 shows how much wages (not compensation, this time) have grown for workers in different income brackets. The higher you stood on the income ladder, the better you did; the highest-paid 1 percent of earners soared above and away from everyone else, practically occupying an economy of their own. By contrast, the bottom 90 percent of earners--which is to say, almost everyone--saw barely any increase, and much of what they did see came in the boom years of the late 1990s.

So, productivity is rising, but it isn't being evenly allocated; the top is effectively disconnected from the rest of the spectrum--slippage No. 2. One reason, especially pronounced in the past decade or so, is that fewer of the productivity gains are flowing to workers, and more are flowing to investors. Chart 3 shows what happened. From the end of World War II through about 1980, almost two-thirds of every dollar of income generated by the economy flowed to workers in the form of wages and benefits. Beginning around 1980, workers' share began to slide and, in the past decade or so, has nose-dived, to about 58 percent. The difference went to shareholders and other investors--who provide capital rather than labor--in the form of higher returns on their holdings.

Why would workers be receiving a smaller share of output, and why would the share they do receive be skewed toward the top? No one is sure, but Sonecom's Shapiro tells a plausible story. First, globalization has reduced American companies' ability to raise prices, and thus to increase their workers' pay, without losing competitiveness against companies in, say, China and India. Second, a smaller share of the value that companies produce today comes from the physical goods made by people like factory workers, and a larger share comes from ideas and intangible innovations that people like software designers and marketers develop. Between the early 1980s and the mid-2000s, Shapiro says, the share of a big business's book value accounted for by its physical assets fell by half, from 75 percent to only 36 percent.

"So the basis for value shifts," Shapiro explains. "This is the full flowering of the idea-based economy." Which is great if you are a brain worker or an investor; otherwise, not so much.

Mr. Rauch, like so many others, misses the obvious: it is not compensation that has been disconnected from productivity but labor.    The idea workers and the technology they've produced have made much of the physical labor force superfluous and any skills they may once have had irrelevant.  That's why we could turn jobs into social payoffs at home and ship them abroad to the undeveloped world.
Posted by at December 8, 2012 7:02 PM
  
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