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News : US Economy Last Updated: Mar 9, 2011 - 12:40 PM

Lion's share of US productivity gains go to shareholders; Real median wage of American male down 28% since 1969
By Michael Hennigan, Founder and Editor of Finfacts
Mar 6, 2011 - 2:48 AM

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Source: The Hamilton Project, Brookings Institution

The lion's share of US productivity gains during the economic recovery has gone to shareholders - - a new development over a 60-year time span - - while research shows that the inflation-adjusted (real) median wage of the American male, has fallen 28% since 1969.

An analysis by The Wall Street Journal (blog post) shows that from mid-2009 through to the end of 2010, output per hour at US nonfarm businesses rose 5.2% as companies produced more with less workers or improved the output of existing workers. But the lion’s share of that gain went to shareholders in the form of record profits, rather than to workers in the form of raises.

Hourly wages, adjusted for inflation, rose only 0.3%, according to the Labor Department. This puts the share of worker's from the productivity growth at 6%, which compares to 58% since records began in 1947.

The Journal says that the argument that unemployment is high, so workers have diminished bargaining power, does not hold up.

Since the 1940s, workers typically received at least half of productivity gains in the form of higher wages. Only in the recovery from the deep recession of the early 1980s, when inflation-adjusted hourly wages fell 0.4%, did workers do worse than they have in this recovery. Back then, though, inflation was much higher: In nominal terms, wages rose 5.7%, compared to 3.1% now.

The low wage rises coincide with rising energy and food prices.

Meanwhile, last Friday in response to the February employment report which showed that the unemployment rate inched down to 8.9% and payroll employment jumped 192,000, economists at the The Hamilton Project of the Brookings Institution, a Washington DC think-tank, updated America’s “job gap” - - the number of jobs that the US economy needs to create in order to return to pre-recession employment levels while absorbing the 125,000 people who enter the labour force each month. They also examined longer-term labour market trends by looking at the earnings of Americans during the past four decades.

Michael Greenstone, director, The Hamilton Project and Senior Fellow, Economic Studies at the Brookings Institution and Adam Looney, Senior Fellow, Economic Studies, and policy director, The Hamilton Project, said that in 2009 the median full-time male worker aged 25-64 brought home $48,000 - - roughly the same as in 1969 after adjusting for inflation. The median level is the point where half of the workers earn less and the other half earns more.

The economists say today, only 66% of American prime-aged men hold full-time jobs, down from 80% in 1970. Further, the reduction in work is greater for the less-educated (79% of high-school graduates held a full-time job in 1970 versus 57% today.)

Greenstone and Looney say that men with jobs are less likely to hold full-time jobs. In 1970, 86% of jobs held by prime-age male workers were full-time jobs, compared with 81% today. Second, between 1970 and today, the share of men without any earnings at all increased from 6% to 18%. Third, 2.2% of these prime-age men now live in institutions - - primarily prisons - - and no longer appear in most labour-market statistics.

They say the pool of full-time workers has shrunk at the same time that the median wages of full-time workers has stagnated, which means that the statistics about the stagnation of wages are based on a comparison of very different groups of workers. The economists say the story of the stagnation of wages is based on a comparison of apples to oranges.

When they examined the experience of all men (rather than just the changing group of men able to find full-time work), the stagnation story has a different ending.

The median wage of the American male has dipped by almost $13,000 after adjusting for inflation in the four decades since 1969 - - a reduction of 28%!

February Job Gap

Greenstone and Looney say the US economy needs to add 12m jobs to get back to the pre-crisis employment situation.

If the economy adds about 208,000 jobs per month, which was the average monthly rate for the best year of job creation in the 2000s, then it will take until June 2023 - - another 12 years - - to close the job gap. Given a more optimistic rate of 321,000 jobs per month, which was the average monthly rate for the best year of job creation in the 1990s, the economy will reach pre-recession employment levels by May 2016 - - not for another five years.

Finfacts article: America: A country you cannot tell a lie about - - Inequality in America

Weighing in on what the economy needs to add more jobs in the next three years, with Peter Morici, University Of Maryland Robert H. Smith School Of Business and Paul Meeks, Capstone Investments:

Alan Greenspan, former Federal Reserve chairman, says "don't underestimate paper profits" The drive of the profits are moving into the system, creating an expansion of capital gains, he adds:

Greenspan: Activism (pdf)

In the Spring 2011 issue of International Finance, former Federal Alan Greenspan argues that the economic recovery has been hampered by the exceptional level of government activism over the past two years.

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© Copyright 2011 by Finfacts.com

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