Home > upward income redistribution > The gap in the USA between the rate of growth of productivity (now at 11.4 percent) and that of wages (1.5 percent) continues to widen

The gap in the USA between the rate of growth of productivity (now at 11.4 percent) and that of wages (1.5 percent) continues to widen

from David Ruccio

productivity-growth

The gap between the growth of productivity (now 11.4 percent higher than in January 2007) and that of wages (only 1.5 percent higher) continues to widen (according to Reuters).

Is it any wonder, then, that income inequality continues to rise?

  1. BC
    June 28, 2014 at 10:31 pm

    David and all, as an interesting exercise (to me, in any case), adjust wages for the ratio of money supply (M2 or M2+ or M2+ plus large time deposits; your choice) to industrial production (IP) to discern what is closer to the effect of the “cost of living” over time on the purchasing power (before taxes) of the bottom 90%+ wage-earning caste. (“Inflation” in this scheme is implied to be the growth of money supply in excess of the growth of value-added production, and then the implicit effect of “inflation” on the purchasing power of earned income over time.)

    “Inflation” since 2007-08 has averaged 5-5.5% (30% decline in the purchasing power of wages since 2007), is at 1.9% annualized YTD, and at 2.2% yoy:

    http://research.stlouisfed.org/fred2/graph/?g=EqP
    http://research.stlouisfed.org/fred2/graph/?g=EqQ

    Average hourly earnings and wage and salary disbursements:

    http://research.stlouisfed.org/fred2/graph/?g=EqD
    http://research.stlouisfed.org/fred2/graph/?g=EqF

    http://research.stlouisfed.org/fred2/graph/?g=Eqo
    http://research.stlouisfed.org/fred2/graph/?g=EqG

    The after-cost-of-living purchasing power (ACOLPP) of wages for the bottom 80-90% is back to the level of 1965 (0% yoy to date), and for wage and salary disbursements, including the salaries of top 10%, the ACOLPP is at the level of 1995 (1.5% yoy to date).

    There has been effectively no growth of the ACOLPP of earned income during “the recovery” since 2008, no growth for 19 years for all wage earners, and not for 39 years for the working class.

    Total local, state, and federal gov’t expenditures similarly adjusted are at the level of 1996:

    http://research.stlouisfed.org/fred2/graph/?g=Eqy
    http://research.stlouisfed.org/fred2/graph/?g=EqH

    Final sales similarly adjusted:

    http://research.stlouisfed.org/fred2/graph/?g=Eqx
    http://research.stlouisfed.org/fred2/graph/?g=EqI

    Non-financial corporate equity:

    http://research.stlouisfed.org/fred2/graph/?g=Eqz
    http://research.stlouisfed.org/fred2/graph/?g=EqJ

    Profits:

    http://research.stlouisfed.org/fred2/graph/?g=EqB
    http://research.stlouisfed.org/fred2/graph/?g=EqK

    Final sales per capita similarly adjusted are at the level of 1993 and at a yoy rate of -0.26% for Q1 and effectively in recession for most of the period since 2008, and explicitly so since 2011 (Fed’s “Twist” and “all in”):

    http://research.stlouisfed.org/fred2/graph/?g=EqM
    http://research.stlouisfed.org/fred2/graph/?g=EqN

    Therefore, adjusted for the ratio of the differential rates of money supply to value-added production, there has been no US per capita economic growth for over 20 years, and the only “recovery” has been from the Great Depression-like deep contraction in 2008-09. Yet, the US economy remains demonstrably at an effective rate of of “growth” of ~0%.

    The Fed propping up the equity and Treasury and corporate bond markets with QE, “the Twist”, “all in”, i.e., QEternity, has not resulted in accelerating growth of value-added per capita final sales adjusted for “inflation”.

  2. June 30, 2014 at 8:24 am

    Well, yes, it is a wonder. It’s a wonder wages don’t catch up! But this is because of rent-seeking at the top, of the ability, for now at least, of the elites to capture virtually all productive gains for themselves while leaving a shrinking middle class with near subsistence wages. As Piketty shows in his book, this is, unfortunately, historically almost normal, except for the post WWII period, which seems to be an historical anomaly. However, this is also the stuff of which revolutions are born.

    • BC
      June 30, 2014 at 3:33 pm

      Yes, it is the historical norm.

      As real final sales per capita stagnates or contracts, there is thus the basis for the expectation for an Elysium-like outcome and resulting social instability and violent political reaction by the top 0.01-0.1% owners of the Anglo-American imperial corporate-state (becoming increasingly a privatized police-state) against the bottom 90%+.

      The neo-feudal scenario will occur with the approval of the next 0.9-9.9% professional middle class, who have fully internalized, and self-identified with, the merits and outcomes of the rent seeking and wealth and income inequality enjoyed by the rentier Power Elite top 0.01-0.1%.

      Under such a scenario, with wealth, income, and political power so concentrated and entrenched to the top 0.01-0.1%, the top 0.01-0.1% owners of virtually everything of economic value will have no need for competitive “capitalist” markets, a mass-consumer economy, innovation, and growth of profits, capital accumulation, and maintenance of “public” infrastructure.

      One can envision “public” assets permitted by the captured political caste to be acquired (confiscated for payment of debt obligations) by the rentier top 0.01-0.1%, cutting off access to resources, beach and lake fronts, private transport, and other existing amenities to the bottom 90-99%, enforced by private paramilitary forces charged with protecting the property of the top 0.01-01%, and under no constitutional restrictions.

      One will enjoy physical and legal protections of the private corporate-state only if one can afford to acquire and own the protection. Everyone else in the bottom 90%+ will be subjected to few, or no, protections, perpetual unemployment and loss of purchasing power, no property ownership, and dwindling, and eventually non-existent, public services.

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