The great wage-earner rip-off

As discussed in the last post, one of the most important facts underlying our current economy is the widening gap between how much workers produce and how much they earn. When presented as a whole picture, it is striking, but today we invite a guest blogger to help us dig a little bit deeper into the issue.

Here is Paine from Market Earth, dissecting some recent research from EPI President Lawrence Mishel:

We need a nice break out of the drivers behind the growing compensation/productivity wedge
ya wage earners took a serious rip  these past 40 years
  but the black hats have brandished their off sets


let us look closer

 cold war competition 48-68  may well have chastened corporate maximos
 so  labor's productivity and compensation traveled  together
up and up  with no lasting change in the size of the C/P wedge

 Apparently the defeat of the soviet competition was so obvious to most
leading guardian class elements by  '72.....the 25  year social contract
between capital and labor was balled up and tossed in the trash can

Anyway, ever since McGovern took the gas pipe in november '72

 its been a bad scene for wage spirits

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Some clips from Mishel and comments:

"During the 1973 to 2011 period, labor productivity rose 80.4 percent but ....
 real median hourly compensation (including all wages and benefits) increased just 10.7 percent"

81 to 11   !!!!!!...fun fact :

"...If the real median hourly compensation had grown at the same rate as labor productivity over the period"

average  "compensation" would now be .......

"$32.61" instead of the actual " $20.01."

"... the relative importance of three wedges
driving the median compensation-productivity gap " 

... 

"1) rising compensation inequality"

Recall those sky rocketing CEO incomes were compensation too.
 The distribution of total compensation has shifted  heroically  upward
in particular toward the top 1% of earners :

"2) the shift from labor to capital income" 

Yup. From wages to profits, excuse me...from employee earnings to corporate earnings.

"3) divergence of consumer and output prices."*

(This requires a note, see * below, where the issue of depreciation is also marked off. **)

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Now the estimated real live  numbers are worth a careful munch over.

 (click on chart for larger version)

Authors at random :

"The most important factor in the 2000-11 era" : 

"the decline in labor’s share of income  "

The rise of the  notorious  rate of exploitation !!!!

"In contrast, the period of sharply rising productivity and falling unemployment in the late 1990s saw a rise in labor’s share of income."

alas also note:
 the late 90's saw a dramatic shift between
      the top  earners compensation and "the rest of us".

But, in aggregate, '95 to '00 stands in sharp contrast to all other sub intervals ....

This becomes particularly vivid when we chart out the numbers graphically:

(click chart for larger version)

     look at that red bar below the zero line for 95-00

labor's share of total income rose
only during this period....

( if we recall the rate of unemployment was allowed to fall thru the taboo line
during this period...obviously we can "conjecture"  a tight labor market
                                                                                            is good for wage share )

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* "The third factor, the fact that output prices (covering investment, exports, imports, government as well as consumption) grew more slowly than the prices of consumer purchases — sometimes labeled a deterioration in “labor’s terms of trade” — was evident throughout most of the last three decades ..."

You may notice the misery of the Ford-Carter years was all about very sharp changes in the cost of living as a wage earner. This would happen regardless of wages keeping up with productivity.

** the share of gross output going to cover  change in the value
of existing  production  facilities

( depreciation of plant soft ware and equipment) grew also during this period. often attributed to changes in composition of the durable elements of the production system  ie bigger share of fast depreciation soft ware )


 (n.b. depreciation is often augmented by stupid accounting tricks.
  There is an incentive to reduce apparent earnings exposed to taxation.)
    

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Thanks, Paine! We can begin to get a rough sense of some of the "counterfactual" scenarious - ie what wage growth "might have looked like" but for the above factors - by simply superimposing the three factors/four periods indicated in the chart above on the productivity/compensation graph. This should not be taken as precise - eg the "bottom edge" of the wedge is flat, rather than following the dip in compensation - but rather as suggestive of the contributions of the various factors, and how different a place average wage-earners would be in, but for the game-changers dealt with above.

 

(click graph to see larger version)