Productivity Growth Won’t Help Workers

Jared BernsteinOne of my biggest problems with the way that my fellow liberals talk about economic debate is that they don’t understand that different people mean different things by the same words. So now we see that Republicans are talking about “economic inequality.” Should we be excited about this? No. To them, the big solution to economic inequality is the same solution that they have had to every economic issue for the last forty years: cut regulation and taxes. Doing this will supposedly increase economic growth and that will in turn increase middle class wages. There are just two problems here: the first and second claims.

For years now, I’ve been ranting about how we need to stop talking about productivity growth. We are now in our fifth decade during which workers have seen little to no gain from productivity growth. How many more decades do we need before people will accept that the rich have rigged the political economy so that they get the vast majority of gains? Really, as a nation, we are living in a fantasy. People seem to think that if we just get rid of all labor unions and worker protections, the rich will reward workers with a piece of the action. It doesn’t work that way. The only reason that workers had a piece of the action before was because of labor unions and worker protections.

I’m always pleased when an actual economist comes out with a paper that backs up what I’ve long been saying. On Tuesday, Jared Bernstein put out a paper, Faster Productivity Growth Would Be Great. But Don’t Count on It to Raise Middle Class Incomes. The secondary part of his argument is that we just aren’t going to get the kind of growth that we saw in the 1960s. This is actually a big Republican lie. Every time one of them comes out with a big old tax cut for the rich, they claim that it will cause the economy to grow at some absurd rate like 5%.

But the main point is that we have no reason at all to think that productivity increases would be shared. He provides a version of a common graph that looks at productivity growth and median family income on the same graph with the same (percentage) scale. Between 1947 and 1973, both increased by a bit less than 100%. But between 1973 and 2013, productivity increased by over 100%, while median family income has gone up only 13%. And notice that even this is deceptive. During the first period, most families had only one person working outside the home. Now most have two. So it is possible to see that 13% increase in family income as coming not from productivity increases but by simply working more.

Bernstein is very careful, of course. I don’t have to be similarly restrained. What we see is that even since 1973, the divergence between productivity growth and median income has increased. This is entirely to be expected from a political, rather than economic, perspective. The more money the rich have, the more political power they have to tilt the economy in their direction. But just on a practical level of solutions, Bernstein has the right idea:

None of these points should deter us from the pursuit of faster productivity growth, but that unfortunately remains somewhat of a black box for economists. On the other hand, raising the minimum wage, pursuing full employment through fiscal and monetary policy, boosting collective bargaining, and other such interventions have all been shown to raise the pay and bargaining clout of middle- and low-wage workers. Whatever the pace of productivity growth, measures like these are a lot more likely to lift the incomes of the middle class.

But this all depends upon us living in an actual democracy. A democracy is about a lot more than voting. But even on the voting front, the United States is showing that you can have apparently “free and fair” elections and still not offer the people any real choice. What’s more, we are now so far removed from the time when workers shared in the fruits of our economy, and most people don’t think anything is wrong and in need of fixing.

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About Frank Moraes

Frank Moraes is a freelance writer and editor online and in print. He is educated as a scientist with a PhD in Atmospheric Physics. He has worked in climate science, remote sensing, throughout the computer industry, and as a college physics instructor. Find out more at About Frank Moraes.

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