I think everyone’s seen the famous graph from the Economic Policy Institute, that show that while Productivity has been growing in a steady and linear fashion decades after decades, wage began to stagnate in the 70s.
Since the 70s, wage have grown about +0.6% per year, while productivity has grown at an average of 1.4% per year. That gap is enormous and it is compounding over time.
Can someone me why it’s happened?
In: Economics
Anyone that tells you it was just one thing is lying to you – there’s a vast network of interrelated issues that led to the decoupling. Here are some of the major ones:
The collapse of the Bretton Woods system of capital controls. Prior to this, no one person could take more than $10k out of the country per day. After the collapse, there were no more limits on transfer of capital overseas. Investments then went from domestic business to overseas as well.
Nixon Shock
The advent of electronic banking
In the late 60s, Congress began learning about and getting on board with the concept of “free market” capitalism.
The collapse of union membership
The realignment of the US economy from a labor economy to a shareholder economy. At the end of the day, the productivity gains and profits are still there – it’s just now they’re all going to business owners and shareholders instead of to the workers.
Finally, you’ll probably hear some folks talk about healthcare and whatnot, and that employees are still making just as much total compensation, but healthcare only makes up a minority percentage of the total delta. In short, the rising costs of healthcare helped exacerbate the problem and certainly played a part, but it didn’t cause it the initial separation.
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