Employers hogging benefits of productivity growth

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It’s been about 40 years since U.S. workers have shared in productivity gains resulting from technical innovations like the Internet and the rise of personal computers, tablets and smartphones, according to a new report from the Economic Policy Institute.

It’s common for employers to use these new devices to increase worker productivity by transferring duties once performed by two or three staffers to a single wage-earner. However, the non-profit, non-partisan think tank’s report suggests that the surviving workers are not being paid more. In some cases, their quality of life actually declines because of the lack of colleagues to cover for them when they need to take sick time or go on vacation.

The EPI data is a graphic illustration of class warfare in action (below left). It shows that U.S. worker productivity grew by 80.4 percent from 1973 to 2011, but compensation for production/nonsupervisory workers in the private sector grew by only 39.2 percent. Compensation includes both pay and benefits, such as skyrocketing healthcare costs.

That financial relationship differs from the post-World War II era, from 1948 to 1973, when worker pay grew in tandem with productivity and class warfare was far less of an issue.

“We are often told that greater competitiveness and higher productivity are the keys to higher living standards,” EPI president Lawrence Mishel says in “The Wedge Between Productivity and Media Compensation Growth. “However, the experience of the vast majority of workers in recent decades has been that productivity growth actually provides only the potential for rising living standards. Recent history, especially since 2000, has shown that wages and compensation for the typical worker and income growth for the typical family have lagged tremendously behind the nation’s fast productivity growth.”

The beginning of the disconnect between productivity and wage gains coincides with the rise of business-first organizations like the Business Roundtable and the U.S. Chamber of Commerce as powerful forces against American workers in the late 1970s.

EPI found that the largest divergence between the growth of productivity and a typical worker’s compensation has occurred since 2000. That start date coincides with the period when American business leaders began to shift their focus from pleasing customers to pleasing investors and began to engage in pump and dump schemes via companies like Pets.com. The defunct venture took in $300 million from investors in just 268 days as a publicly traded company without ever turning a penny of profit prior to its close in 2000.
 
“From 2000 to 2011, when the productivity-median compensation gap grew the fastest, the divergence of prices had only a modest impact, whereas the shift from labor to capital income was the single largest factor, accounting for roughly 45% of the gap,” Mishel said.

Capital income reflects money made through interest on loans, dividend and stock investments. In short, money siphoned from our economy by Wall Street investors who make nothing but zeros for a living. It also reflects income from rents, which are poised to rise in the coming years as the United States is transformed from a nation of home-owners into a nation of renters by the banking sector’s predatory loans, excessive interest rates, mortgage backed-speculation, and foreclosure fraud.

Investor and banking sector profits exploded after 1983, when lobbyists succeeded in undermining state usury laws which had capped interest rates at 11 percent  in most states. Previously, only loansharks charged the 29 percent credit card interest rates and 900 percent  payday loan rates that are common and legal today.

Mishel’s report identifies three “wedges” that have stood between productivity growth and the experience of American workers since 1973, and especially in the past decade:

  • The share of overall income received in wages by workers has decreased; correspondingly, the share accruing to wealth holders via unearned income (dividends, interest, profits) has increased.
  • The compensation of the median worker has grown much more slowly than compensation for the highest-paid workers.
  • Workers have suffered worsening terms of trade, meaning the prices of things workers buy have increased more quickly than the prices of things workers produce.

The third wedge illustrates the negative Wal-Mart effect on U.S. workers as factories are shipped to low-wage nations to trim labor costs, but the prices for the goods they produce remain disproportionately high here in the United States. The 1% is growing fat in th gap.

The divergence of pay and productivity is largely responsible for the growth in income inequality in the United States, according to EPI. The new report previews data from the 12th edition of The State of Working America, which will be released in August.