Productivity-Pay Gap - Reality check for VT CFED

excerpt from:Testimony before the Labor-HHS Education Subcommittee, Appropriations Committee, U.S. House of Representatives
By Lawrence Mishel

The Productivity-Pay Gap
...our policy discussion must be situated in the reality that our nation is not generating broadly shared prosperity even though we have seen relatively fast productivity growth that provides the basis for rapidly rising incomes. It is easy to see that the group that has benefited most from economic growth has been the top 1%, who obtained about 10% of all market-based incomes in 1980 but who by 2004 (the latest data) had doubled their income share to about 20%.1 Income inequality has certainly risen substantially since 2004, so we probably have the most income inequality since before the great depression, seventy-seven years ago. In contrast, the typical working family has less income now than it did in 2000, as their incomes have fallen $3000, or 5.4%.

This disparity of results reflects the fundamental economic challenge of our time: to repair the disconnect between growing productivity and the pay of the vast majority of the workforce. Since 1995 we have enjoyed a historically fast growth in the goods and service produced per hour worked­or productivity. As Figure 1 shows, the hourly wages for the median worker (who earns more than that of half the workforce but less than the other half) grew in the 1995-2000 period as did the hourly wages of high school and college –educated workers (those with a bachelors degree but no further education). The momentum of the late 1990s wage growth carried over until about 2002 but stalled thereafter. In particular, the inflation-adjusted hourly wages of the typical median worker as well as those of both high school and college-educated workers have been stagnant over the last four years while productivity grew by 11.5%.

Middle-class economic anxieties are also being fueled by an erosion of employer-provided health and pension benefits. In 2005, only 44.1% of the workforce had an employer-provided pension plan, a drop from the 48.3% who did so in 2000. The share of the workforce that had employer-provided health insurance in 2005 was 54.9 % in 2005, lower than the 58.9% share in 2000 and far below the 69.0% who received such coverage in 1979. The extent of the erosion of benefits can most readily be seen in the fact that only about a third of the jobs obtained by recent high school graduates provide health insurance; in contrast, in 1979 about two-thirds of recent high school graduates received health insurance in their early jobs. This erosion of benefit coverage can also be seen among recent college graduates: only 63.5% of recent college graduates received health benefits in their entry level jobs, down from over seventy percent (70.6%) in 2000. This erosion of benefit coverage is at the core of the eroding quality of jobs for the vast majority and signals that we can no longer develop health and retirement policies as if we are building on the employment based systems for the simple reason that these systems are unraveling.

‘Wage Deficits’ not ‘Skill Deficits’
It is important to note that these wage and income problems faced by the vast majority do not come because they have skill deficits or because of skill shortages that have hampered our competitiveness. After all, we have had rapid productivity growth for the last ten years with the very same workers who now do not participate in economic growth. Moreover, it is hard to claim that the stagnant wages of college graduates and the failure of new college graduates to locate jobs with benefits is the result of their deficient skills...false claim that a growing wage gap between college-educated and other workers is somehow responsible for the recent growth of income inequality.

No, America’s workers do not face a “skills deficit”: rather, they face a deficit in the wages and benefits that employers provide. This gap between pay and productivity growth is the result of economic and employment policies that shift bargaining power away from the vast majority of us and toward employers and the most well-off. A multitude of factors have contributed to stagnant wages and growing inequality: the steep drop in unionization rates (from 25% in the late 1970s to under 13% today); the failure to raise the real value of the minimum wage, let alone raise it in accordance with productivity (its value has declined by over 25% since the late 1960s); macroeconomic policy that has kept the unemployment rate too high for most of the last 30 years; unfettered globalization and offshoring that increasingly puts U.S. workers in competition with workers around the world; economic deregulation and the privatization of government services; and escalating pay for CEOs. An agenda of accelerated globalization and greater national saving, as some urge, or simply improving skills and education will neither bring the growth needed nor reconnect pay and productivity.