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September 04, 2009

Interesting Graph

Here's an interesting graph from a paper by Dean Baker called "Behind the Gap Between Productivity and Wages":


This is actually a smaller gap than I've seen elsewhere; e.g., in The State of Working America.

I'm sure Baker is the one who's right (the main difference has to do with technical details about how you deflate the productivity numbers to make them comparable across time). Nonetheless, this is kind of amazing. It suggests that if wages had gone up at the rate of productivity from 1973 onward—as they did from World War II to 73—and if this increase were taken in time rather than money, everyone could make as much in wages as they do now while only working four days a week. Or we could all work five days a week but get ten more weeks of vacation every year.

I would say more, but I'm too tired from my job.

—Jonathan Schwarz

Posted at September 4, 2009 12:26 AM

Yes but I think people who still have jobs probably feel pretty lucky just to have a job. Still, that’s an interesting gap. It must be due to novel and new approaches in good management practices.

Posted by: Rob Payne at September 4, 2009 01:54 AM

Wouldn't at least a part of that disparity be from changes in the way we are paid? Health care costs more so companies that provide good care can pay less. (Not that that idea takes away from the central point)

But what about other types of compensation. Other benefits and equity? Surely those are all on the rise in the same period.

Posted by: Dilapidus at September 4, 2009 02:06 AM

entertainingly, for-profit medical shows up as both wage-eater and source of productivity. "hooray, by the fruits of our labor, others paid much more than our services were worth!"

in the graph from the book, the median-for-women lining up so close with the compensation average for so long suggests to me that most of the actual wage rise from baker's graph was women improving toward comparable wages, not at all the same thing as having extra money.

Posted by: hapa at September 4, 2009 02:29 AM

also here's one of krugman's "reagan did it" graphs:

compare that to dean's and, wow, look where the money didn't go

Posted by: hapa at September 4, 2009 03:11 AM

Well, the two graphs look pretty similar - and I like the the linked one has median and by-gender datalines. Much richer. Either way, though, they point to a serious problem. I'm betting that the median-compensation shows the gap that feels most accurate to the average person, due to the "Bill Gates and two paupers are on average billionaires" issue.

Posted by: Krinn DNZ at September 4, 2009 04:40 AM


Wouldn't at least a part of that disparity be from changes in the way we are paid? Health care costs more so companies that provide good care can pay less. (Not that that idea takes away from the central point)

But what about other types of compensation. Other benefits and equity? Surely those are all on the rise in the same period.

I didn't make this clear, but this graph is of compensation, broadly defined -- ie, including health benefits and pensions. So for just the reasons you point out (mostly higher health care costs), actual wages have gone up much less than the "compensation" line here.

In fact, for "production and non-supervisory workers" (a BLS-defined category that includes 4/5 of all workers) wages have gone up something like 1% since 1980.

Posted by: Jonathan Schwarz at September 4, 2009 07:40 AM

Krinn DNZ:

Well, the two graphs look pretty similar - and I like the the linked one has median and by-gender datalines. Much richer.

The significant difference between the two graphs is the productivity line. As you see if you look again, State of Working America has it going up 90% since 1973, while Dean Baker argues that they're measuring it wrong and it's actually gone up less than 50%.

Posted by: Jonathan Schwarz at September 4, 2009 07:48 AM

Good chart. Important point in the post.

Paul Krugman had a long article on the woeful state of economics yesterday ("How did economists get it so wrong?") that showed a glimmer of the ideology and hubris in economics these days, and how it leads economists to frame their questions poorly and set up their complex models with assumptions that diminish the utility of those models, if not render them actually harmful. Krugman's article is well worth reading.

Asking WHY wage growth has not kept pace with productivity growth since the early 70s would be useful to anyone trying to make sense of the world economy, but it leads to heresy. No one other than Robert Brenner seems to focus on the significance of the declining rate of profit in manufacturing, which parallels the growing gap between the rate of wage growth and productivity growth across the same period. How can profits steadily fall while productivity increases, we might ask. But instead of looking at the evidence and asking that, the economists Krugman lambasts assume that no such thing happens. Our Panglossian experts simply assume it to be impossible in the say way that markets are assumed to reach equilibrium, asset values are assumed to reflect future income streams, and speculation is assumed to be a waste of time and an aberration, because economic actors are rational and asset values already are reflected in market prices.

And yet, empirically, the rate of profit has fallen outside the FIRE sectors since 1970, no matter what one assumes, just as the real estate bubble popped whether or not we assume it never existed.

Why has the rate of profit fallen? Marx long ago referred to that tendency as "the most important law of political economy" and tried to explain it, but his labor theory of value crashed on rocky shores. Brenner has set out to renew interest in the question and to analyze what the empirical data shows. His approach is not mathematics, but science. More of that might help. But I expect that instead economists will continue to develop models based on the assumption that what is actually happening really isn't possible, and offer cogent logical explanations why they don't are right in their assumptions, which must be right a priori, as any fool can see.

In the meantime, manufacturing profits and wages presumably will continue to fall, as they have been falling for the past 40 years, along with benefits and other forms of income (I believe they have fallen too, not risen as an offset as Dilapidus suggested). That spells big trouble, as everyone seems to sense, but we are now so committed to the global economy and the Empire than maintains it that all remedies seem dangerous or like the most sentimental nostalgia.

To make matters worse, whether the FIRE sector will be able to maintain profitability I certainly cannot say, but I am skeptical. A look at the behavior of our banking and insurance sector and their contribution to society and the body politic reminds me of a cornered animal. And, as we all know, cornered animals are dangerous.

Then again, you can't really just let them run loose hurting people.

Posted by: N E at September 4, 2009 08:00 AM

"In 1996 the combined wealth of of the worlds 358 richest people, all billionaires, was equal to the total income of 45 percent of the worlds population, around 2.3 billion people."

"The share of world income held by the top 20 percent rose from 70 percent in 1960 to 85 percent in 1991."

Some stats related to the topic and further reason why a revolution is needed...this wont change in any significant way until there is strong well organized and powerful world wide movement to make it so.

First quote is from the UN Development Program 1996, cited in "Black Flame: The Revolutionary Class Politics of Anarchism and Syndicalism" and the second is from "Workers in a Lean World: Unions in the International Economy."-Tony

Posted by: tony at September 4, 2009 08:30 AM

Maybe when the Civil Rights Act passed and the Negroes finally got their freedom, white workers thought it over and figured it must not be worth much. So for these past few decades they've been trying really hard to get rid of it.

Posted by: Sam Holloway at September 4, 2009 10:09 AM

Sam Holloway:

I don't mean to demean your funny post by being serious, but there is an actual connection, albeit indirect, between the decline in official state-sanctioned racism in the U.S. and this problem of greater income inequality. It's unfortunately also something that lots of economically displaced white people who used to have manufacturing jobs intuit: Our neoliberal international economic system and the hall-monitor Empire we maintain to keep it running is incompatible with officially sanctioned racism, which alienates foreign populations and domestically tends to encourage protectionism, neither of which encourages the capital mobility on which our perpetual ruin is now based.

After WWII, the world really was in the midst of the sort of revolutionary crisis that Tony would like. Countries around the world were trying to get rid of colonialism and fascism and wanted both political and economic democracy, typically in the form of communism. The U.S. of course set about to combat that everywhere, as everyone knows, but we had a problem: Our ghastly racism really didn't play well in Asia and Africa and Latin America, whereas communism did. As a result, that most conservative of institutions, the State Department, began actively supporting putting an end to segregation because it was bad for our nascent Empire. You can read about this, among other places, in Derek Bell's book Silent Covenants: Brown v. Board of Education and the Unfilled Hopes for Racial Reform, especially Chapter 6 "Brown as an Anticommunist Decision". It can even be previewed online:

I'm glad that desegregation and the Civil Rights Movement happened, but I regret that it wasn't just a triumph of the people. And I hope that if our neoliberal global economy once again collapses into a bunch of regional and local economies, we don't get all the ugliness of the past back again.

Posted by: N E at September 4, 2009 11:02 AM

One might start asking whether "economics" as applied to American politics is anything other than justifications for consumerist, materialist, cronyist capitalism.

If someone knows of an American "economist" who doesn't assume capitalism is the only system, please identify that "economist."

Thank you.

Posted by: Fame is Not Wisdom at September 4, 2009 01:05 PM

Fame Is Not Wisdom,

Roger that.

N E,

Chris Floyd has a post up that in some ways extends your points about the incompatibility of official, de jure racism with neo-liberal Imperial policy. It's worth a read:

Also, I find Joe Bageant's weblog to be illuminating. He puts the finger on class, not race, as the central issue.

Our Masters and Betters, ever more diverse and cosmopolitan in their own composition as the Elite themselves become globalized, happily exploit race, nationality, and religion to keep everybody else working at cross purposes. Dividere et vincere. It's an old tactic but, since so many are of the belief that life is a zero sum game, still a potent one.

Remember that so long as MLK was addressing racism in his protests and social organizing, he was within the range of toleration of the Elite. When he began to seriously organize along class lines, he got whacked. And still, to this day, while he is memorialized as a Civil Rights Leader, you don't hear much about him being a Social Justice Leader. Wouldn't be wise, wouldn't be prudent. Control of the messaging so it doesn't stir up the rabble.

Posted by: JerseyJeffersonian at September 4, 2009 03:40 PM

The two curves start to diverge after Reagon becomes president.

Posted by: Edward at September 4, 2009 04:26 PM

I shamelessly cribbed a piece from Lenin'sTomb the other day which gives this phenomenon--increased productivity and flat/declining wage--its "name": exploitation.

Posted by: Woody at September 4, 2009 06:15 PM

The two curves start to diverge after Reagon becomes president.

I hope you're not suggesting there's some sort of connection between those two phenomena. The gap between wages and productivity is just something that happened, like a hurricane. No human agency was involved, and to claim otherwise is to love terrorism.

Posted by: Jonathan Schwarz at September 4, 2009 07:22 PM

Thanks JerseyJeffersonian, I had already read Floyd's post(I like Floyd because he understands the National Security State pretty well), but I have never heard of Bageant, and I like what I just read of him a lot.

As to that hurricane-like divergence between the growth curves for wages and productivity, I think the truth is even uglier than Katrina, and I might as well say it since I obviously love terrorists. The same forces that have given us the declining profit rate since Breton Woods collapsed in the early 70s also started Big Money looking to undo all those banking and other laws, which the Rich Bad Guys ultimately accomplished with the Reagan Revolution.

So not only has everybody working for $6 or $10 an hour not gotten a raise in a long time because people in Asia will work for even less, their banks and credit card companies and non-bank financial institutions and health insurers have figured out better and better ways to grab more and more of their money every year too. It's no wonder that people get really desperate and get ripped off buying lottery tickets.

Posted by: N E at September 4, 2009 08:40 PM

Good post. No wonder you're in an insane asylum instead of practicing economics. Great comments too. I'm not sure Tony's revolution is near at hand, but the gap Baker notes is real, growing and obvious. The direction any revolution might take is what we all need to think about.

N E -- great comment. Let me elaborate on a point you made. I'm not sure that Marx got the falling rate of profit in manufacturing wrong. It happens in almost every industry. Without using the labor theory of value Marx simply observed that as a capitalist accumulates surplus value he must either a) re-invest it as capital, b) take it as profit or c) return it to its source (the workers). Admittedly, a combination is most likely, but the result doesn't change. C is not possible over the long run in a capitalist system -- the workers must be kept suppressed through longer hours and/or lower pay. B would violate the tendency of capitalists to compete with one another for wealth in that a failure to reinvest would lead directly to a decline in profit as the existing capital stock depreciated. A, which is what we expect of capitalism, leads to a decline in the rate of profit (or shrinking margins, if you prefer) as the return on capital investment goes up, but more slowly and the rate goes down.

Marx concentrated on large scale manufacturing and missed the existence of the sweatshop-contractor mode of capitalism (now known as first in time) wherein small manufacturers and jobbers would rise up and disappear in the service of large financial empires such as GE, GM, Toyota Boeing, etc. It amounts to the same thing as capitalists must turn to financial, rather than capital investment, for what they consider a reasonable rate of return.

Posted by: drip at September 5, 2009 04:38 PM


Thank you for the compliment. What you say is very interesting, and you are far ahead of me with regard your knowledge of Marx, at least as to the economics of Capital. Brenner has really helped me better understand some of the big problems in the present-day international economy in recent years. (Krugman and Dean Baker have too). If you know any others with real insight, I'm interested.

Posted by: N E at September 6, 2009 12:10 AM

"As to that hurricane-like divergence between the growth curves for wages and productivity, I think the truth is even uglier than Katrina, and I might as well say it since I obviously love terrorists."

Damn it, N E. Don't give the NSA any ideas!

Posted by: Nikolay Levin at September 6, 2009 02:14 AM


I'm sure our gigafiles are cross-indexed, amigo.

And now that I've used that obvious code word, there's a cross-index to Latin American terrorists too!

Posted by: N E at September 6, 2009 11:11 AM

the gap was filled by debt.

compare that chart with denningers chart of percapita debt:

Posted by: 42Cliff at September 7, 2009 11:08 AM

Yeah.. I know.

I didn't know the U.S. government kept tabs on..erm.. "freedom fighters" they harbor. Maybe its to make sure no one finds out about them :P.

Posted by: Nikolay Levin at September 8, 2009 08:57 PM