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If Worker Productivity is Continuing to Go Up, Why is the Buying Power of So Many of Us Going Down?

By   Follow Me on Twitter     Message Richard Clark     Permalink
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First some well documented facts to support the argument and answers that follow:

As Pulitzer Prize winning investigative reporter David Cay Johnston recently stated, "American paychecks shrank last year, just-released data show, thereby further eroding the public's purchasing power, which is so vital to economic growth.

"Average pay for 2013 was $43,041 -- down $79 from the previous year when measured in 2013 dollars. Worse, average pay fell $508 below the 2007 level, according to new Social Security Administration data.

"Flat or declining average pay is a major reason so many Americans feel that the Great Recession never ended for them. A severe job shortage compounds that misery not just for workers but also for businesses trying to profit from selling goods and services to them.

"Last year, overall median pay (half of Americans make more, half make less) was $320 below the 2000 median. It also was slightly lower than the 1999 median of $28,109, which is a troubling measure of long-term wage stagnation that is eroding the American work ethic and discouraging individual investments in acquiring and refining job skills.

"A good way to grasp the loss of American purchasing power is to compare earnings from jobs, to population and the size of the economy. This reveals that the slice of the economic pie going to workers is thinning while the slice for profits is fattening."

And, as economist Robert Kuttner has recently reported,

"From 1947 through 1972, productivity in the United States doubled, and median household income also doubled. However, in recent decades, as economists Robert Gordon and Ian Dew-Becker have shown, allproductivity gains have accrued to the wealthiest 10%. In 1955, near the peak of union strength, the wealthiest 10% received 33% of the nation's personal income, whereas by 2007, they received 50%.

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"Profits have been growing at wages' expense. Today, wages and benefits make up the lowest share of America's gross domestic product since World War II. Wages have fallen from 53% of GDP in 1970 to 44% today. Michael Cembalest, J.P. Morgan's chief investment officer, has calculated that reductions in wages and benefits accounted for 75% of the increase in corporate profits between 2000 and 2007.

"What's causing this decline in workers' ability to claim more of the nation's wealth? It's certainly not that they're less productive: According to a Wall Street Journal survey of the S&P 500 (listing the nation's largest publicly traded companies), revenues per worker, which were $378,000 in 2007, grew to $420,000 in 2010, thanks to growing worker productivity. Businesses now produce more with fewer employees, yet even those workers who've managed to keep their jobs haven't seen their wages rise."

Where have all the nation's increase in profits gone? To the top 10%, especially the top 1%.

Abundance of basic goods and services for all is impossible in the super wasteful, hyperconsumption-hyperproduction treadmill economy.

Why so? It's because the very large majority of workers have no other choice than to keep busy producing all the superfluous stuff that can be made to sell for top dollar, to people like themselves who spend increasing amounts of their waking hours at work, and who then buy all this stuff as compensation for the fact that they no longer have enough leisure time and education to develop and enjoy their full humanity, much less spend enough time with their children. With so many people working such long hours (on the 'treadmill' so to speak), in an economy where robots, automation, computer applications and foreign workers are doing an ever larger share of whatever work remains available, there is simply no longer enough decently paid work to go around. The result is a continuing reduction of the number of people in America's great middle class, many of whom are slipping into poverty.

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If everyone had the right to work a 30-hr week without losing any benefits, many would jump at that opportunity, and existing work would soon be distributed much more evenly, as it spreads out among much larger numbers of people. But the 30-hr week may be a long time coming, since those who currently 'own' most of our members of Congress would lose money bigtime with this kind of transition. Therefore, some people (an ever growing number) are going to continue to get left out, i.e. they will be denied adequately paid work. This means growing poverty in a world of plenty.

Artificially maintained scarcity of basic goods and services, deriving from the abnormally low incomes of the ever larger numbers of the poor, is inevitable in this kind of an economy. Why so? Because owners of businesses do NOT view reducing production costs as being a means of increasing the affordability of their products for one and all. Rather, they reduce costs purely as a means of increasing profits when competition is tight and they need to either regain or keep their market share. In other words, the only reason you see price reductions is because of the competition occurring in any given industry, as each company works to undercut the prices of the other.

But no matter how cheap goods and services might become, at some point the consumption deficiency (i.e. the inadequate amounts of consumption that result from growing numbers of people being kept unemployed and underemployed, by way of ever increasing automation), will override whatever degree of affordability is being generated by the lower-cost products being created. In other words, if the wages of too many consumers fall too much, the amount of stuff that will be purchased will not be enough to prevent growing numbers of layoffs.

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Several years after receiving my M.A. in social science (interdisciplinary studies) I was an instructor at S.F. State University for a year, but then went back to designing automated machinery, and then tech writing, in Silicon Valley. I've (more...)

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