About a year ago, Stan Sorscher, Labor Representative, Society for Professional Engineering Employees in Aerospace, published a frighteningly important blog at The Huffington Post (where I also blog on a regular basis) headlined “Inequality — “X” Marks the Spot — Dig Here.”
It was as important for what it gets right as for what it misses.
In 2002, I heard an economist characterizing this figure as containing a valuable economic insight. He wasn’t sure what the insight was. I have my own answer.Figure 1. Something happened in the mid-70’s
The economist talked of the figure as a sort of treasure map, which would lead us to the insight. “X” marks the spot. Dig here.
This figure tells three stories. First, we see two distinct historic periods since World War II. In the first period, workers shared the gains from productivity. In the later period, a generation of workers gained little, even as productivity continued to rise.
The second message is the very abrupt transition from the post-war historic period to the current one. Something happened in the mid-70’s to de-couple wages from productivity gains.
The third message is that workers’ wages – accounting for inflation and all the lower prices from cheap imported goods – would be double what they are now, if workers still took their share of gains in productivity.
This de-coupling of wages from productivity has drawn a trillion dollars out of the labor share of GDP.
Economics does not explain what happened in the mid-70s.