September 17, 2006

WORKING AMERICA, PART I: THE BIG DISCONNECTION



Caption: Seamus McGoogle attributes his productivity to a strong Puritan ethic.

Every two years, the Economic Policy Institute (EPI) publishes The State of Working America, which is pretty much what it sounds like.

According to the EPI website,

The mission of the Economic Policy Institute is to provide high-quality research and education in order to promote a prosperous, fair, and sustainable economy.


The 2006/2007 version was released this Labor Day and was written by Lawrence Mishel, Jared Bernstein, and Sylvia Allegretto. The report is over 300 pages long and contains detailed information and analysis about income, social mobility, wages, jobs, wealth and poverty.

The next few posts will highlight some of the key findings.

Let's start with a big one: the growth in US productivity that began in 1995 and has continued since that time. Productivity is the output of goods and services per hour worked.

Starting in 1995, productivity jumped from an average rate of 1.4 percent per year, a level that had been fairly constant since the 1970s. Between 1995 and 2000, the increase was about 2.5 percent per year. From 2000 to 2005, the rate jumped to 3.1 percent per year.

That should have been good news for working families. Economic growth creates the conditions for shared prosperity. But there is no automatic connection between the two. As the authors put it:

Our findings show that while faster productivity growth creates the potential for widely shared prosperity, if that potential is to be realized, a number of other factors have to be in place. Those factors include labor market institutions (such as strong collective bargaining), an appropriate minimum wage, and, most importantly, a truly tight labor market, all of which are necessary to ensure that the benefits of growth reach everyone, not just those at the top of the wealth scale.


During the last half of the 1990s, the increase in productivity was matched by a smaller but nonetheless substantial increase in median family income. Significantly, real income increased above the rate of productivity for minority and single parent families.

In the first half of the 2000s, however, these gains were reversed. Poverty rates increased, as did the number of the uninsured (by 17.1 percent and 15.1 percent respectively). In this period, "income growth has been uniformly negative, with especially large reversals for less-advantaged families."

In other words, US workers, the geese that lay the proverbial golden eggs, have been laying more and bigger eggs and getting less feed in return.

With apologies to "Cool Hand Luke," what we have here, in other words, is a little bit more than a failure to communicate.

GOAT ROPE ADVISORY LEVEL: WIDE

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