What matters most in economics often gets the least attention. So it is with the link between wages and productivity: what workers get paid versus the value of what they produce. Most commentators focus elsewhere. They hype what their employers want to see or what they want others to believe. Stock boosters see market upswings underway or around the corner. Politicians in power repeat what the stock boosters say. Those betting on market downturns pay their commentators to pitch gloom and doom. Politicians out of power copy them and promise when elected to resume prosperity so they too can mimic the stock boosters.
Let’s do the basic US wage and productivity numbers that seem to elude most commentators. The data come from the US Bureau of Labor Statistics, gathered and interpreted by the Economic Policy Institute (BLS and EPI websites are free). For the details on these numbers see www.epi.org/datazone.
From 1973 to 2005, this is what happened to the 80 percent of US workers in non-supervisory jobs. Their hourly wages — adjusted for inflation — rose from $15.76 to $16.11. That is, over a 32 year period, most US workers enjoyed a stunning 2 percent increase in what their hourly pay could buy. Because their work weeks shortened over those years, their real weekly pay — what they could actually afford for a week’s pay — actually fell from $581.67 to $543.65, a decline of 6.5 percent. This means that workers’ wages could buy less in 2005 than in 1973.
Over the same thirty years, US workers produced 75 percent more. In the language of economics, that’s how much output per worker — “productivity” — rose. Corporations got 75 percent more goods and services produced per worker. They sold that extra output and thus got much more revenue and profit per worker employed. Yet what they paid those workers did not rise. Stagnant wages did not allow the workers to buy any of the extra output they produced.
Why and how did this happen? Over the last three decades, jet travel, computers, the internet, and cell phones changed every workplace on the planet. Companies survived global competition if they produced more with fewer workers. So they changed technology to replace people with machines, and they successfully pressured the remaining employees to work harder and faster. At the same time, they moved production to places where they could minimize costs by using dangerous technologies and production methods (think lead-contaminated toys or chemically dangerous pet food and so on). Perhaps they bribed or persuaded local authorities to ignore the resulting ecological, safety, and health problems; perhaps they just looked the other way as in “failing to properly supervise.” In any case, what mattered and what happened was that productivity rose.
Wages, however, went nowhere because US corporations (1) outsourced what had been US jobs to cheap labor overseas, (2) imported immigrants willing to work for less, (3) threatened to export their jobs if US workers pushed wages higher, and (4) financed politicians who legalized all these actions and undercut the already shrinking unions. In 1973, union contracts covered about 24 percent of US non-supervisory workers. By 2005, that number fell to 12.5 percent.
And always, a growing army of well-paid commentators in the mass media glorified the “efficiency of the world economy.” Sometimes, troubling facts arose to threaten the constant celebration (anti-free-trade protests, scandals involving toxic exports, etc.). The commentators found ways to ignore them, deflect attention from them, and soothe their audiences by recalling the wonders of “the new modern economy.”
Yet the importance of rising worker output coupled with stagnant real wages is clear for anyone willing to see. It is exploitation getting worse. The huge size of the post-1975 productivity-wage gap overwhelms all the usual quibbles about the statistics. The gap between the standard of living that their rising productivity made possible and the standard of living their wages could afford got wider every year.
Many problems unfolding now in the US economy flow from this worsening exploitation. American families, culturally accustomed to measuring individual success by achieved levels of consumption, experienced a thirty year freeze on how much their wages could buy. Had they limited purchases to that income, they could not have realized the American dream of a rising standard of living. They would have been losers.
So they rebelled. With their wages effectively frozen and no union, party, or social movement available to unfreeze them, workers responded individually. Women moved massively to add wage-labor to their housework. Families undertook massive personal debt. As families and finances became shaky, anxieties grew. Upset by frightening changes on so many levels, Americans sought reassurance or escapes from new pressures. Fundamentalisms enjoyed revivals: in churches, synagogues, and mosques but also in politics, patriotism, “family values,” and economics. Escapisms bloomed — spectator sports, drugs, alcohol, food, but also fitness, pornography, and the private techno-worlds of iPods, blogs, chat rooms.
Sub-prime is a euphemism that applies to much more than low-grade mortgage loans. It describes the whole US economy that came after the 1945-1975 period, after the nation’s experiments with a welfare state, a mass middle class, and rising mass consumption. The numbers on productivity and real wages before then — from 1945 to 1975 — were very different. Productivity rose much faster then than afterward. But the big difference is what happened to real wages: hourly, they rose 75 percent from 1947 to 1972, while weekly they rose 61 percent. In other words, US workers wages then rose with their higher productivity — exactly what stopped happening after the mid-1970s.
The welfare state economy of 1945 to 1975 was driven by two interconnected fears: of lapsing back into the Great Depression and of succumbing to socialism. History reduced those fears enough so that, after 1975, business could undo the New Deal and go back to the pre-1929 gaps between rich and poor. Most paid commentators cheer the business reaction as if it were good for everyone, but workers suffering the new sub-prime economy may reckon differently. The explosion of workers’ debts has postponed that reckoning. So too have fundamentalism, escapism, and the noise from all those commentators.
How long this sub-prime economy continues depends much more on workers’ responses than on FED policy, dollar depreciation, or tight credit. However, grasping that dependence requires that we disconnect from that other world created and sustained by business and their commentators and politicos.
Rick Wolff is Professor of Economics at University of Massachusetts at Amherst. He is the author of many books and articles, including (with Stephen Resnick) Class Theory and History: Capitalism and Communism in the U.S.S.R. (Routledge, 2002) and (with Stephen Resnick) New Departures in Marxian Theory (Routledge, 2006). Another version of this essay was published on <www.globalmacroscope.com>.