Why is there a gap between productivity vs wage, that began in the 70s?

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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

20 Answers

Anonymous 0 Comments

Capital investment is significantly higher for the same output. There are generally more layers to business, but that silly graph ignores it.

Silly/Simplistic Example:

Blacksmith is making steel and can pound 50lbs of iron into steel a day and gets paid $10.

Blacksmith starts working at steel mill and can produce 5,000lbs of steel per day. Should he now get $1,000? No – that’s silly. He can only produce that much because of the powerful/expensive smelters that he works with. Someone built the smelters. Someone designed the smelters. Someone else needs to maintain the smelters. etc. The blacksmith gets $15. He’s making 50% more for the same work but is producing 100x as much.

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