The Economic Policy Institute, (EPI), a non-partisan think tank based on H Street, in the heart of Washington, D.C., recently came out with q report about trickle-down economics, increased worker productivity and wage stagnation. EPI Director’s Lawrence Mishel and Joshua Bivens last week released a report outlining the disparity between pay and productivity. Paul Krugman, the distinguished economist and op-ed columnist for New York Times, commented that, ‘“The divergence between pay and productivity – a lot of productivity gains, almost total failure to trickle down—is one of the most striking features of American economics these past 40 (!) years.”’
In essence, what has happened, and what Krugman and the NYT reported, was that rising worker productivity has increased corporate profits, which has netted in larger executive compensation and shareholder returns, yet not a corresponding increase in worker pay. The EPI (epi.org), estimates that C suite executives have enjoyed a 300 times increase in pay since 1980, while line worker wages have only risen 30 times since then. Moreover, the Bureau of Labor Statistics reports that the value of total nonwage compensation, including health and pension benefits, grew just $.27 between 1987 and 2014; or roughly a penny a year. This neither compensates for nor explains the wages losses among American workers. Rising benefits for the worker is a thing of the past. Anyone who claims that middle class families have seen a rise in living standards should know that to the extent that this is true, it is only attributable to working more hours or multiple jobs. Poverty level wages, not the supposed skills gap, is what makes it difficult for businesses to find loyal employees. Without those employees to keep small businesses running, those businesses couldn’t exist.
Any progress achieved in reducing poverty since the ‘60s (when tracking began) is due solely to an improved social safety net. Usually this is measured by government in-kind support such as SNAP, social security benefits, health care benefits, housing subsidies, EITC and TANF. Thus, flat or falling pay is self-reinforcing because it dampens demand and therefore by extension, economic growth.
With the 2016 presidential election on the horizon, worker productivity and wage stagnation has emerged as a central issue in American politics, inspiring debate across party lines. One of the ways legislators and politicians can “fix” the inequity is to champion legislation to raise the federal minimum wage, provide sick leave and paid family leave, fight theft of overtime pay and abusive worker scheduling– especially in industries traditionally reserved to the immigrant, undereducated and underserved populations. Policies to spur wage growth will also encourage productivity through full employment, education and public investment. This would restore a healthy link between productivity and worker’s pay.
by Susan Dardes, a BCWAC Partner