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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
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
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
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
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.
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.