Labor's Declining Share of Income. American Capitalism... Is Not Ok

[Agschmid]

No, This Graph Does Not Prove That Everything Is Fine With American Capitalism

If you keep up with the debate about inequality, at some point you've probably read that pay for middle-class Americans has failed to keep up with their productivity. Workers are creating more value for companies than they used to, but aren't being compensated for it. Maybe you've even seen a graph like this one, from the Economic Policy Institute. The dark blue line shooting up at 45 degrees? That's productivity—or economic output per hour of labor. The light blue line that nearly plateaus around the late 1970s? That's compensation for production and nonsupervisory employees—wages and salary plus benefits for people who basically aren't in management. The bigger the wedge between those two lines, the more it seems like something has been fundamentally wrong with capitalism for the past 30 or so years. It may have been working, but not for workers.

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But is this picture misleading? Is your average employee still reaping the gains of the economy? Clive Crook at Bloomberg View seems to think so. In a post headlined “American Capitalism Isn’t Broken After All,” he points to a set of graphs from Harvard Economist Robert Lawrence that adjusts the typical productivity-pay comparisons in a number of ways. It's a bit involved, but in brief:

- Instead of tracking wages, he tracks compensation. (EPI does the same, but some writers and economists just look at cash income.) This is important, because lots of worker pay might be getting eaten up by the cost of health insurance and other benefits.
- Instead of calculating pay for nonmanagement workers—or for the median worker—he looks at average compensation for all workers.
- He subtracts capital depreciation—the cost of replacing worn-out equipment, from giant auto-factory robots to the laptops in your office—from economic output. Why do that? Because neither workers nor company shareholders really get to pocket the money that's eaten up by depreciation. It's basically part of our national cost of doing business.
- He adjusts everything for inflation based on the cost of products workers produce, rather than the cost of living.

Ultimately, you get a graph that looks like this. Average wages don't really fall behind productivity until about 2000.

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Read more, and see how far we really have fallen behind.

[laundry_queen]

1. I wish I could rec this a million times

Shocking, but not really. It just puts on paper what we already know.

[octoberlib]

2. Excellent posts, Agschmid! Rec, rec, rec

[hfojvt]

3. I hate it when people talk about averages

It seems to hide more than it reveals. Especially when this guy throws management into the average.

Some workers get NO benefits. I know, because for years I was one of those workers. "Labor's share" is just another one of those big piles of money that does NOT get divided either equally nor fairly. For me it is less about labor than it is about the laborers who are at the bottom.

Part-time workers that want full time work
workers without paid holidays
workers without paid sick leave
workers without paid vacation
workers without health benefits
workers without pension benefits

And depreciation seems like a joke to me. Like this

income = 1,000
expenses = 700
depreciation = 200
profit = 100

Except the company still has $300. That $200 in depreciation was NOT really spent. True, it may or may not need to be spent in the future. Often things do need to be replaced, or they may be replaced long after they have been depreciated away. It's a sensible way to plan for the future, but it is not true to say "the company does not get to pocket the money that's eaten up by depreciation". That money goes somewhere.

[6chars]

4. what about the ownership economy

my 401k is up by $10,000 - doesn't that make up for all the lost raises? someone help me with the math