Today's positive economic news that worker productivity in the second quarter of 2015 was better than expected – up at an annual rate of 3.3 percent – underscores a fundamental question about today's economy: If workers are increasingly productive, why aren't they increasingly well paid for it?
The fact that workers aren't being rewarded for their productivity gains is well documented in a report released today by the Economic Policy Institute. According to its survey of worker productivity and wage trends since the 1970s, workers have only gained a tiny share of the rewards of productivity gains. The rest have gone to corporate CEOs and owners, and that has been the major contributor to the widening "income inequality" gap between workers and the top 1 percent of income earners.
Net productivity growth increased 21.6 percent between 2000 and 2014, but only 8 percent of that growth translated to increased wages for workers, the EPI report said. It used to be much, much higher: Going all the way back to 1973 and measuring up to 2014, 15 percent of productivity growth went to increased compensation. During that period, there was net productivity growth of 72.2 percent, but median worker compensation, adjusted for inflation, increased less than 9 percent – and almost all of that increase took place between 1995 and 2002.
Simply put, said EPI economist Josh Bivens during a call with reporters, the rewards of being a more productive workforce are "not tricking down to boost worker pay the way they used to."
In fact, between 1980 and 2013, a period in which net worker productivity increased 62 percent, the pay of the bottom 90 percent of workers increased 15 percent, while the pay of the top 1 percent increased 138 percent.
This is not a result of inexorable economic changes – acts of economic nature, in other words – but is "clearly reflective of intentional policy decisions ... that shifted bargaining power away from low- and moderate-wage workers to corporate managers, capital owners and a very narrow slice of privileged workers at the top."
Those choices include not allowing the minimum wage to keep pace in inflation, weakening the ability of unions to organize and bargain on behalf of workers, and "abandoning the aggressive pursuit of full employment as a policy priority."
When asked if there were a single important step to reverse these trends, Bivens said "there is no silver bullet." Instead, "it's going to require policy action on a number of fronts," including enabling "the people who are not benefiting from the economy [to] assert themselves so that they do benefit."
EPI chief economist Lawrence Mishel did point to the decision of the Federal Reserve whether to raise interest rates this fall as "the most important policy decision of the next two years." A decision by the Fed this fall to increase interest rates will slow the economy before the it has had an opportunity to grow to full employment and before workers have had the opportunity to bid wages upward in a tight labor market.
In the meantime, the entire economy could benefit from what a small but growing number of companies are realizing – that as Mishel put it, "faster wage growth could propel productivity growth," not only because more satisfied workers generally work better but because employers will respond to higher wages with other types of investments in equipment and technology that would help each worker become more efficient. "There's a beneficial spillover effect," he said.