| Economy

Productivity Has Been Rising, but Wages are Stagnant. What gives?

Since 1970, workers have seen nearly no average wage growth despite productivity more than doubling.

By Hector Miranda Plaza, December 26, 2020

 Wage disparity is something that has always existed throughout human history, whether it be with the chief of the tribe getting the most food or the feudal lord being granted the most luxurious of comforts. What is unheard of throughout human history, however, is the dilemma persisting in a nation like the United States, whose wealth creation is constantly increasing. In the US alone, from 1979 to 2018, net productivity among all workers has increased by 69.6% while the compensation the average worker has received for this newfound spring in productivity, after compensating for inflation, has stagnated.

This explains what, in the eyes of older generations, seems to be endless entitled bickering about how they can’t afford housing and other necessities easily obtained by Baby Boomers during their young adulthood. Has this poor state of affairs always been the case?

During the late 1700s and early 1800s, when the Industrial Revolution was in full swing, this phenomenon began to emerge as a measurable pattern. In the UK, from 1770 to 1840, the real GDP per worker - a measure of productivity using monetary standards - rose 43.9% while real wages only rose 27.1%.

Although this moderate increase in wages was paired with a drastic decrease in the prices of goods, this economic condition would not be sustainable, as seen in the rise of the Labour party and the push for many pro-worker legislation laws such as the 8-hour workday. This trend would be mostly unaffected until after World War II, when the rise of organized labour changed the equation.

After World War II, in the United States, the share of income gained by the top 10% of earners decreased from around 45% during the war to just under 35% in the preceding decades. This improvement in the distribution of productivity was paired with a great leap in the percentage of workers who were part of a union.

Unsurprisingly, when collective bargaining was introduced into corporate decision making, labourers demanded a fair share of their work, leading to better wages, benefits, working conditions, and hours. This equity between employee and employer stayed steady throughout the preceding 50s and 60s, with both productivity and wages rising at a similar rate. 

During the 1970s, however, this would soon change with the election of Ronald Regan. Once neoliberal fiscal policies undermining the bargaining power of and cracking down on unions were put in place, employers were free to gnaw away at the gains made by workers during the previous two decades, and union membership saw a steep drop.

This shift to neoliberalism, accompanied by massive cuts to the marginal tax rate of the top 0.1% and business-friendly laws, unleashed the persistent spectre of wage and productivity imbalance that still haunts the working class to this day. After the history of this inequality is studied, the solution is obvious: to re-unioninze.

While unions are definitely a good first step, it is important to remember that the root problem of the discrepancy between productivity and wages is not the absence of unions from the negotiation table, but rather the presence of a minority of monied individuals and conglomerates owning the businesses and services that produce the goods we rely on. Despite the perception that this state of affairs will continue for what seems like an eternity, as well as the decline of unions, there is still hope to be found.

 The approval rating of unions among Americans has risen to nearly 50-year highs, and it is apparent more people are receptive to the idea of unionizing now than before the spread of neoliberalism. The journey to increase the bargaining powers of unions will inevitably be tedious and difficult, but for the first time in many decades it is feasible. By organizing our workplaces, we can take the first steps towards a more just, equitable, and free society, one by and for the people.

Hector Miranda Plaza is an author for and co-founder of Young Patriots Magazine.