Americans keep working harder and producing more economic growth. But they’re not getting rewarded with any extra pay for it, according to a new report from the Economic Policy Institute (EPI).
After the end of World War II, the country experienced decades of steady economic growth that also translated into steady increases in pay for the workers who were fueling it. As the report’s authors write, “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.”
But that link was severed starting in 1973. Between then and now, productivity, or the amount of economic output generated by an average hour of work, grew 72.2 percent. On the other hand, pay for the typical worker rose just 9.2 percent.
Compensation for the median worker, or the person making exactly the middle of compensation, adjusted for inflation, grew just 8.7 percent between 1973 and 2014, or a 0.2 percent annual rate. Yet net productivity grew at a 1.33 percent annual pace in the same time. Things have gotten even worse since 2000: net productivity has grown 21.6 percent since then, yet inflation-adjusted compensation for the median worker grew just 1.8 percent.
What this means is that just 15 percent of the extra growth workers generated between the early 1970s and the present has translated into higher wages and benefits for them. Since 2000, just 8 percent of productivity growth has gone back to workers.
And it means that stagnating wages aren’t workers’ fault. “People have been told that the economy isn’t doing well and therefore that’s why people haven’t done well,” Lawrence Mishel, president of EPI and a co-author of the report, told ThinkProgress. But economic growth has kept increasing at a healthy rate. “Everybody’s wages could have grown substantially. But they didn’t.”
This isn’t accidental, either. “We haven’t been in an economic tsunami where people aren’t able to move ahead,” Mishel said. “This is a man-made phenomenon.”
The paper notes that there are three dynamics that can explain the divergence between growth in productivity and growth in wages and benefits: growing inequality in compensation, or skyrocketing pay for those at the top of the economy compared to everyone else; a greater share of income going toward corporate profits and not wages; and the increase in consumer prices that means wages don’t stretch as far. The first two basically indicate growing income inequality, and together they account for more than two-thirds of the divergence between productivity and pay between 1973 and 2014. And it’s getting worse with time: Between 2000 and 2014, these factors made up 87.2 percent of the gap.
And Mishel argues that income inequality has resulted from deliberate government policy choices, “policy decisions made on behalf of those with the most income, wealth, and power that suppressed wage growth.” Research has consistently shown that the government is more responsive to the desires of the rich than everyone else. The policies Mishel points out are those that undercut labor standards, such as allowing unemployment to remain too high, failing to raise the minimum wage, letting overtime protections erode, and the corrosion of collective bargaining rights.
But since these policies didn’t come about by accident, they can also be reversed with similar efforts. “What men create, men and women can reverse,” Mishel noted. EPI has previously laid out its recommendations for raising American workers’ pay, including lowering unemployment, improving labor standards, and reining in the richest 1 percent.
At the same time, any proposals that increase economic growth without also finding ways to make sure that growth translates into higher wages won’t benefit the vast majority of Americans. Otherwise, the current break between productivity and pay will simply continue.