There is something very wrong with this picture

This graph is from a new paper by Frank Levy and Tom Kochan, showing trends in labor productivity and compensation since 1980:

Labor productivity increased by 78 percent between 1980 and 2009, but the median compensation (including fringe benefits) of 35-44 year-old males with high school (and no college) education declined by 10 percent in real terms.

Women have done in general better, but two-thirds of women still have seen their pay lag behind productivity.

Levy and Kochan call for a Social Compact to reverse these trends, and outline some of the steps necessary to get there. The paper is very well worth reading.

Comments

[John Valerio]

Serious question:

Why only show the productivity average for all groups instead individually so productivity can correspond directly with the group in question?

Is it possible that the lions' share of the productivity increases lie with the groups that gained in median weekly income and not so much with those with only a High School education?

Isn't this simply part of the "skills gap" line of reasoning in education?

[Leigh Caldwell]

I intuitively agree with many of the paper's recommendations and I'm glad there are still economists thinking like this, when it feels like most of the profession is just as Chicago-school as it was four years ago.

However, I'm not convinced by much of the analysis that leads to those recommendations. The most obvious point is the one made by John above; comparing average productivity across all groups with the wage increases of subgroups makes it hard to know what the real relationships are.

Also, productivity is a mean while the three wage graphs given are based on medians. If the mean wage has in fact gone up in line with productivity (I have no idea if it has, but there are hints at this in the paper's discussion of the financial sector) then the divergence of mean and median indicates an inequality concern which is valid, but different from the paper's main point.

Then, we can ask whether productivity has risen per unit of capital or just per unit of labour. It may be that much of the productivity comes from increased capital use or better management, in which case it seems more legitimate that the returns go to shareholders or managers respectively. But the paper doesn't ask this question.

There are some logical questions too - for instance the idea that because labour unions were important in the formation of a previous Social Compact, they must necessarily be a precondition of a new compact. However, the authors are clear by that point in the paper that they are making policy recommendations and not doing economic analysis any more, so I don't have a real issue with that.

In short, I sincerely look forward to reading good economic analysis which supports the idea of a humane and communitarian economic model. Unfortunately I don't think this paper is quite there.

[Account Deleted]

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[Blissex]

One thing that is very wrong with this picture is that it is about WEEKLY earnings instead of HOURLY earnings.

The picture about HOURLY earnings is far more interesting, especially as number of hours worked per week has not stayed constant, especially for "white collar" work.

[Blissex]

«much of the productivity comes from increased capital use or better management, in which case it seems more legitimate that the returns go to shareholders or managers respectively.»

If you ask many a business owner or a manager, they will tell you that ALL productivity (not just all productivity increases) comes from capital and management, as workers are not contributing anything themselves.

The idea is that nobody worries about the increase or decrease of the earnings of the cattle in a farm, even if their productivity (meat, milk, ...) increases, because without the farmers and their bankers the productivity of the cattle would be zero.

Sure, you need to feed the cattle or the workers, and play muzak to keep them relaxed and more productive, but those are just the costs of keeping them going, and minimizing those costs is an important goal.

[Ellis Greenfield]

I think the highest productivity increases have come in manufacturing. So, the way I read it is that those with "lower education levels," which is a euphemistic way of saying "working class," were much more productive than many of the comments care to admit.
Also, what I find kind of amusing about the paper is that there are no actual social struggles in the history of this country. The paper mentions The Treaty of Detroit. But where did the UAW actually come from? On the other hand, when the paper mentions the decline of unions, it is blamed on "objective" factors, like trade. Did the author ever hear of PATCO?
To sum up, I guess that we are supposed to think that working people are just "little people" with no education, who are not very productive, but instead are just passive pieces of jelly who are acted upon by the big brains who run the private and public sectors -- all under the watchful and enlightened eyes of our academic "consciences."

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