Superimposing a trend line on worker compensation data reveals that there was a brief transition period from 1973 to 1980 during which the growth rate of worker compensation radically changed. The gap between new wealth and wage compensation has grows wider every year since.
What does this mean? It means the social forces that altered wage compensation began abruptly and remained active over a brief period of seven to eight years. The social forces created a persistent structural change in America's hourly wage compensation that remains in effect today. It means that long term social trends don't account for this structural change because they don't fit the data.
Long-term trends present as long slow arches rather than sudden bends in a trend line. This means that the social actions that permanently altered the wage and productivity balance happened quickly and none of the major social trends happening before or since the transition period have had much impact on wage compensation.
The hypothesis that this change was the result of the rise of two paycheck families doesn't fit this pattern. Woman entering the workforce would have had to started abruptly in 1973 and end by 1981. Of course we know that woman were entering the workforce much earlier and the trend wasn't complete by 1981. It is also difficult to imagine how this phenomenon would actually cause a persistent structural change in worker compensation over the decades.
The relatively brief transition, represented in this graph, also rules out other long term trends that are often cited by economists as reasons for lower wage compensation. For example, it's often said that globalization of our economy accounts for the wage/GDP disparity. It is true that globalization affects employment rates and puts downward pressure on American worker incomes, but the trend itself is also a longer, slower process that doesn't fit the pattern. Even the process of shipping business operations overseas took place over a longer period of time. None of the explanations offered by most economists seem to fit the narrow window in which hourly GDP and hourly wage compensation diverged.
Seven years is a short period of time to bring about such a persistent structural change of this magnitude. Something big must have been happening at the time. What was it?
Consider what was happening in the 1970's. This was a hyperactive period for Nixon era conservatives which gave rise to the new conservative movement, also known as the Neo Con's. They laid the groundwork that swept Ronald Reagan into office in the 1980.
This was a time of rapid formation of organized business associations and industry trade groups. This was unprecedented in our history. It was the business answer to the growing influence of organized labor. These associations and trade groups pooled the considerable resources of big business to create the powerful business lobby we have today. They embarked on a massive anti-union marketing blitz to demonize unions and turn public sentiment against them. In 1973 the organized muscle of the newly formed corporate lobbyists got congress to pass legislation creating political action committees (PACs) which gave big business a means to funnel large sums of money into candidates political campaigns.
At the same time, the coordinated collusion of big business, with a nod from business funded politicians, weakened the effectiveness of collective bargaining. Businesses everywhere were emboldened to end the practice of sharing their profits (wealth) with their employees.
In a span of less than a decade nearly all productivity raises ended for most Americans. All the new wealth (profits) generated since then have gone to top executives and wealthy business investors. The "raises" most employees received since this structural changes were merely cost of living adjustments.
Adjusted for inflation, most American families are making today what their parents family made decades ago, yet the nation's wealth has more than doubled. The median income of a family of four today is around $51,000 per year. It would be over $100,000 per year if wage compensation had continued to rise proportionally with the wealth we produce. The widening area between the two data lines after 1973 above represent lost income for most Americans.
2. Expanded social service programs and income eligibility caps for aid to the working poor created incentives for workers to keep their compensation low so they qualify for government assistance.
Regarding the second point about (#2), expanded social services and income eligibility caps creating a disincentive to work: I have addressed this topic in previous articles. This disparaging of social supports for the economically disadvantaged echoes a frequent conservative talking point. It goes by many names, such as the "welfare state" or the "nanny state. " It promotes the idea that there is a giant dependency on social welfare programs.
But this attack on working families distracts from the fact that a growing number of people require government aid to the working poor to maintain basic stability. Their plight is a direct result of lower worker compensation caused by premeditated structural changes in the 1970's. It hides the fact that subsidized assistance to working families allows corporations to have lower labor costs and higher profits. (A government supported labor force is a hidden corporate subsidy.) It dismisses the power of higher wages as a motivation for people to work hard and inspire hope for a better life. It obscures the fact that many companies have found ways to exploit the poor to profit off taxpayer subsidies. Most disturbingly, it blames this suppressed wage compensation on its economic victims.
For a fuller explanation of the impact of lower wages on social services, please read " "Making the Case for a Living Wage" previously published here and at click here
(Article changed on September 15, 2015 at 07:14)
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