EPI on Lagging Wages, Rising Productivity.

Lawrence Mishel and Heidi Shierholz have a new paper out, The sad but true story of wages in America. Here’s the story, in one simple graph:

The story written out:

• U.S. productivity grew by 62.5% from 1989 to 2010, far more than real hourly wages for both private-sector and state/local government workers, which grew 12% in the same period. Real hourly compensation grew a bit more (20.5% for state/local workers and 17.9% for private-sector workers) but still lagged far behind productivity growth.

• Wage stagnation has hit high school–educated workers harder than college graduates, although both groups have suffered—and a bit more so in the public sector. For example, from 1989 to 2010, real wages for high school-educated workers in the private sector grew by just 4.8%, compared with 2.6% in state government. During the same period, real wages for college graduates in the private sector grew 19.4%, compared with 9.5% in state government.

This is the graphical representation about the joke with the 12 cookies.   Private sector workers aren’t sitting around watching public sector workers take off in the distance.  They are watching their wages stagnant while the economy is pushing wealth further and further into the top-end of the distribution.  It’s not just a story about education, mind you. Here’s the same pattern for college educated workers.

Kash at Angry Bear Blog take a similar chart going back to the 1950s:

Mishel and Shierholz conclude:

The rhetoric of some newly elected politicians has suggested that state and local public employees in the United States are some sort of privileged class, earning high wages and benefits at the expense of the taxpayers. In fact, state and local government employees are not a privileged class.

Rather, they are part of the same class as the taxpayers to whom they provide services, and find themselves in the same situation: Neither private-sector workers nor state and local government employees have seen their pay rise much over the last two decades, and what meager pay growth they have experienced has been far outpaced by growth in productivity—the increased goods and services that they themselves have generated. The substantial growth in productivity, income, and wealth in the last few decades could and should have generated some pay growth for American workers. Reconnecting the growth of workers’ pay to the growth of productivity is the major challenge policymakers should be addressing

Getting a handle on this is going to be a major challenge. We’ll be addressing it over the next few months here. Meanwhile, here are four abstracts by David Card or David Autor and Katz about rising inequality to get started.

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12 Responses to EPI on Lagging Wages, Rising Productivity.

  1. I consider these articles somewhat disingenuous because they only focus on what workers make THIS YEAR. The statistics appear to ignore downstream obligations.

    I’d love to see basic information regarding all future benefits obligations laid out mathematically. Do State workers get both a federal and state pension when they retire?

    How long do state workers work before they are eligible for their pension as compared to the private sector worker? Just lay out all the info so it can be intelligently discussed.

    Piecemealing the information seems to obfuscate any real discussion about the issues. One can make the argument that the HUGE pension funds that state employees from all states pay into ironically led to the accelerated loss of private sector jobs in the U.S. because higher returns were made investing in production in Asia rather than the U.S.

    • Tim says:

      “Do State workers get both a federal and state pension when they retire?”

      There are 14 states where teachers cannot collect social security, rather their state pension takes its place. It wildly varies based on the state and the occupation whether or not the worker will draw from social security and a smaller state plan or a full state plan. There isn’t any inherent overpayment in either system, especially given that workers contribute much of their “official” pay towards these systems in either case.

    • To add on to my previous post, my point is that paying state workers MORE NOW, and letting them invest it as they see fit, may be better for all local economies since that money would more likely be invested or spent locally rather than siphoned off into a pension fund that may invest outside of their own state.

      Instead of funding their own pension fund later, pay state workers more money now, forego their own pension, and they can stick with regular SS later in life like the private sector does.

      • Tim says:

        It’s definitely more beneficial in that state governments are likely to defer payments to the pension funds while the employee side of the pension funds are always paid in full. It would prevent the looming disaster created by politicians who prevent proper payment to these funds. It also might prevent their being wiped out in bad market times.

        If workers are paid more now, I could see that working better than the current system. It would probably also mean that these employees would now also collect (and have to pay) social security.

    • spencer says:

      My God– you can not even read and you expect us to take your seriously.

      Look at the title on the chart — it says compensation, not wages and compensation includes the fringe benefits, including retirement that you are saying is not in the data,

      Grow up.

  2. Brian says:

    I think the focus on wages versus total hourly compensation is part of the issue here.

    http://research.stlouisfed.org/publications/net/20070301/cover.pdf

  3. Magpie says:

    So, if I understand Anderson’s point, the gap productivity growth/real wages growth (nonfarm business sector), during the 1999-2003 period can be entirely explained by “variable pay” (i.e. items like “end-of-year bonuses, ‘cash awards’, profit sharing, and stock options”).

    During the period 2003-2006 variable pay still explains that gap, but only partially.

    As the “variable pay” items by definition do not apply to State and local government sector employees, I suppose Anderson would not object to the corresponding curve in Mishel’s & Shierholz’s chart.

    In that case, the divergence between public and private sectors wages, if anything, is underestimated by Mishel & Shierholz: it is much larger than determined by them and started way earlier.

    This creates a puzzle: how can two quite different labour prices (i.e. “wages”) co-exist for such a long time? I mean, wouldn’t State and local government employees try to find much better paid jobs in the nonfarm business sector?

    Assuming Kash’s data contains no errors, according to Kash’s chart (from Angry Bear Blog) the gap starts around 1980!!! If one assumes Anderson’s analysis adequately explains the divergence during the entire period 1999-2006, can one simply assume it also explains the divergence from 1980 and 1999?

    This seems unlikely: “variable pay” is a rather recent phenomenon (in Australia, where I live, it’s still rather infrequent, although not entirely absent; maybe Brian or Mike Konczal could comment on the American market?).

    I have the suspicion (and that’s just a hunch, as I have no data corresponding to the US), that the items included in Anderson’s “variable pay” might be concentrated on certain categories of nonfarm business sector employees (i.e. executives and graduates).

    If that’s the case (and I repeat: that’s an educated guess only), Anderson’s results, even if correct in aggregate terms, are misleading: nonfarm business sector executives might have been overpaid, while the rank and file were being screwed.

    Something like what’s referred in the following note:
    Where is the outrage?

    http://wisaflcio.typepad.com/wisconsin-state-afl-cio-blog/2011/03/where-is-the-outrage.html

    Has Anderson written a more elaborate analysis on the subject? Perhaps the doubts mentioned above have already been addressed.

    PS: Apologies for taking so much time to post on this subject.

  4. Pingback: U.S. Wages Aren’t Keeping Up With U.S. Productivity, EPI Says « Zera's Blog

  5. Jay says:

    No jokes about walking through a river where the median depth is 5 ft and another river where the average depth is 5 ft? Anyone want to offer some evidence that productivity gains have exhibited a normal distribution?

  6. Jay says:

    I guess in all fairness you need an institution as far left as EPI to counter balance Heritage.

  7. essbird says:

    Don’t get me wrong, I’m on the progressive side of this, I’m a government worker watching my pension get attacked. But can anyone show what the effect of automation has been on productivity? Is all of the flat wage problem due to CEO hoarding, or are corporations just learning how to get along without those pesky humans? Are we turning into Vonnegut’s Player Piano? I ask because to the extent this is true, we’re not going to raise wages by demanding them; we’re going to have to reinvent the economy to fit a post-industrial model.

  8. Pingback: The “Conservative Leftist” responds : Lawyers, Guns & Money

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