The real mystery

Posted: 30 May 2017 in Uncategorized
Tags: , , , , , ,

fredgraph

Neil Irwin would like us to believe there’s a mystery surrounding the U.S. economy. But it’s not what one might expect:

The real mystery. . .isn’t why wages are rising so slowly, but why they’re rising so fast.

Really?!

In Irwin’s model, workers’ wages should rise at the same rate as productivity combined with inflation. And he’s worried that wages are rising faster than that right now.

Except they’re not. And they haven’t been for decades.

As is clear from the chart at the top of the post, the change workers’ wages (hourly wages for production and nonsupervisory workers) has often surprised the rate of growth of per capita output (GDP per capita) for long periods of time. But when we add in inflation (according to the Consumer Price Index), only rarely in recent decades have wages surpassed the sum of output and price changes (during some months of some recessions). In general, workers’ wages have fallen short—in many cases, by 4 and 5 percentage points.

And that’s been going on for decades, which is why the labor share of national income has been falling. Workers produce more, prices go up, and wages rise by much less.

Even recently, after a short period when wages were rising faster than productivity plus inflation (from the second quarter of 2015 to the third quarter of 2016), that trend has continued. In the first quarter of 2017, when wages rose at an annual rate of 2.4 percent, the rate of growth of output per capita and inflation was higher, at 3.9 percent.

For Irwin, as for most mainstream economists, the real mystery is why productivity has been growing so slowly—because they cling to the idea that everyone, including workers, will benefit if only they could find some way to boost productivity.

But that ship sailed long ago. Workers’ wages haven’t matched the growth of the value workers produce for decades. And there’s no reason to expect that trend to change in the foreseeable future—not when employers can get away with paying workers as little as possible.

As I see it, the real mystery is why Irwin and mainstream economists continue to hold to the myth that workers will benefit from rising productivity.

It doesn’t take a Sherlock Holmes (or, if you prefer, Kurt Wallander) to figure out that, if they continue to focus on productivity and its supposed benefits, they can try to keep things just as they are right now.

But the rest of us know the existing economic institutions have failed—and failed miserably for decades now—and that radically new ways of organizing the economy have to be imagined and enacted.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s