2006 August 30 Wednesday
We Live In Bio-Electronic Gilded Age?

Once upon a time America went through a Gilded Age. We can see economic parallels between that bygone era and today. Steven Greenhouse and David Leonhardt of the New York Times report that the median hourly wage of American workers has declined even as productivity has risen.

The median hourly wage for American workers has declined 2 percent since 2003, after factoring in inflation. The drop has been especially notable, economists say, because productivity — the amount that an average worker produces in an hour and the basic wellspring of a nation’s living standards — has risen steadily over the same period.

As a result, wages and salaries now make up the lowest share of the nation’s gross domestic product since the government began recording the data in 1947, while corporate profits have climbed to their highest share since the 1960’s. UBS, the investment bank, recently described the current period as “the golden era of profitability.”

Until the last year, stagnating wages were somewhat offset by the rising value of benefits, especially health insurance, which caused overall compensation for most Americans to continue increasing. Since last summer, however, the value of workers’ benefits has also failed to keep pace with inflation, according to government data.

Good for you if you are not in the bottom half.

The National Association of Manufacturers (NAM) reports a big 3.8 percent increase in productivity in just the last 4 quarters.

The 3.8 percent growth in manufacturing productivity and 5.8 percent rise in output over the past four quarters has resulted in expanding employment. Production employment over the last 12 months has increased by 170,000, the largest number of job created over a 12-month period in eight years. The overall increase in the number of jobs rests on 225,000 jobs being created in 11 of the 22 major manufacturing industries, while only 55,000 jobs were lost in the other 11 industries. Job creation has primarily occurred in four industries: computers and electronic products, transportation (excluding motor vehicles), fabricated metals and machinery. Job loss has also been concentrated in four industries, including textile mills, paper products, apparel and textile products. Interestingly, the sectors responsible for job creation also account for a quarter of the U.S. total exports and produce the bulk of equipment purchased by U.S. businesses.

A new dichotomy between production and non-production workers has developed over the last year as well. The rebound in employment has mainly been on the factory floor. Non-production employment has continued to decline, falling 153,000 this past year. Consolidation, efficiency gains and outsourcing are among the many likely reasons for the decline, when combined with the fact that the government only counts employees at establishments that actually produce products as manufacturing employees.

The NAM also sees wage stagnation due to a number of factors.

Despite increases in real compensation, wages are not rising. Higher costs for benefits like health care are partially to blame, however surging energy prices are the main reason wages have not kept pace with inflation, according to the report. In fact, the overall consumer price of energy has increased by 80 percent during the current expansion, eating into worker paychecks and reducing real wages. Overall, real hourly wages have fallen 0.6 percent, while real wages among manufacturing workers are down 1.7 percent.

How unfun.

Harold Meyerson of the Washington Post looks back longingly on the by-gone era when rises in productivity were translated into increased living standards for the bulk of the population. "The Age of the Great Upward Redistribution" is a bit too bulky.

The young may be understandably incredulous, but the Great Compression, as economists call it, was the single most important social fact in our country in the decades after World War II. From 1947 through 1973, American productivity rose by a whopping 104 percent, and median family income rose by the very same 104 percent. More Americans bought homes and new cars and sent their kids to college than ever before. In ways more difficult to quantify, the mass prosperity fostered a generosity of spirit: The civil rights revolution and the Marshall Plan both emanated from an America in which most people were imbued with a sense of economic security.

That America is as dead as the dodo. Ours is the age of the Great Upward Redistribution. The median hourly wage for Americans has declined by 2 percent since 2003, though productivity has been rising handsomely. Last year, according to figures released just yesterday by the Census Bureau, wages for men declined by 1.8 percent and for women by 1.3 percent.

His terminology also misses the point that the cognitive elite are producing the increased amount of wealth that is not flowing down to the lower IQ workers. The faster the computers, the fancier the software, and the more powerful the robots the less the masses are needed to make goods or provide services.

The declining prices for lower skilled labor is the market's way of telling us that it does not need as many lower IQ workers. But the US government is more responsive to those who benefit from lots of low priced low skilled labor. So the US government ignores the signals from the wider market and continues to let in lots of low skilled low IQ workers..

Update: Data from the Census Bureau shows median family income rose only because of more people working and investment income.

The nation’s median household income rose slightly faster than inflation last year for the first time in six years, the Census Bureau reported yesterday.

The rise, however, had little to do with bigger paychecks — in fact, both men and women earned less in 2005 than 2004. Rather, census officials said, more family members were taking jobs to make ends meet, and some people made more money from investments and other sources beyond wages.

The bad and not so bad news is geographically clustered.

The 5.9 percent drop in median household income since 1999 was not shared equally around the country. In Michigan, median household income fell 11.9 percent between 1999 and 2005. In North Carolina, it was 11.2 percent, in Utah 10.4 percent and in Indiana 9.5 percent. But in some states, the impact was not nearly so great: a drop of 2.5 percent in New York, 2.4 percent in South Dakota and 1.9 percent in New Hampshire. In the District of Columbia and six states — Hawaii, Maine, Maryland, Montana, North Dakota and Virginia — the change was so small that it fell within the survey’s margin of error.

North Carolina makes sense. It has experienced a large influx of illegal Hispanic immigrants. That'll drive down native wages and increase the population of poor outsiders.

Share |      By Randall Parker at 2006 August 30 09:48 PM  Economics Labor

Stephen said at August 30, 2006 11:33 PM:

Further on the low skills issue, EuroTrib has an article up regarding KPMG's international competitiveness league tables. The idea is to assess the overall cost of doing business in key economic sectors and across a range of countries with advance economies, with the US being the baseline (so all figures are either better or worse compared to the cost of doing business in the US).

It comes up with a particularly interesting result: Several european countries (including France) have lower business operating costs than the US. There was an exception however regarding one specific sector of the economy where the US whipped Europe - its a great place to set up businesses needing unskilled labour.

Here's the league table results (non-industry specific)

% - - - - - Country
22.3 - - - - Singapore
5.5 - - - - - Canada
4.4- - - - - France
4.3 - - - - - Netherlands
2.2 - - - - - Italy
1.9 - - - - - UK
0.0 US baseline
-6.9 - - - - - Japan
-7.4 - - - - - Germany

Stephen said at August 30, 2006 11:40 PM:

Randall, would you be willing to consider allowing table html in comments? Maybe just the html nbsp (fixed width spaces) keyword would be enough.

John S Bolton said at August 31, 2006 2:59 AM:

Productivity numbers for the US should be under suspicion, or, at least when they are reported as if not representing mainly additional dollar support by foreign central banks.
America is not a producer country so much as it is a tribute-devouring one, like Spain at the time of the gold fleets.
When the anti-merit society of racial patronage was set up in 1971, America was running large current account surpluses, as had been the case for decades prior.
After a few years intensification of this system, the US started to become a dependent on dollar support.
Now after 35 years of the anti-merit programs, and the doubling of the disadvantaged
minority population via negligent immigration policies; the US each year engorges its wastrelage with another $700 billion of dollar support from foreign central banks, who do not wish us well, and calls it productivity increase!

Stephen said at August 31, 2006 4:50 AM:

John said: America is not a producer country so much as it is a tribute-devouring one, like Spain at the time of the gold fleets.

John, that's by far the most insightful assessment of the US condition that I've ever seen. It fits in all sorts of ways.

Mark said at August 31, 2006 7:08 AM:

Steven Greenhouse and David Leonhardt of the New York Times were less than honest.

See http://cafehayek.typepad.com/hayek/2006/08/catering_to_ign.html

Helpful said at August 31, 2006 10:20 AM:

Stephen, non-breaking spaces
work       just       fine       here.

RP said at August 31, 2006 10:25 AM:

Meyerson points out this "Great Compression" between 1947 and 1973. He fails to note, however, that there was a dramatically lower level of immigration during those years. Even legal immigration was heavily restricted between 1925-1965.

Randall Parker said at August 31, 2006 4:43 PM:


To my knowledge I do not filter out non-breaking spaces. Let me see:

I'll test   here:        and then we see if there was a gap betweeen "here:" and "and".

I also do not filter out the tags for table, td, tr, and so on. I've written them in to comments and it worked.

Mind you, I use commercial blogging software and it does stuff that sometimes surprises me.

Stephen said at August 31, 2006 7:20 PM:

Yeah, I retried nbsp and it worked just now, but didn't yesterday. Never managed to get tables to work here though.

Probably safe to blame the user (me).

crush41 said at September 2, 2006 7:40 PM:

An interesting aside:

With wage decreases, income is not only coming from people working more. It's also coming from strong investment returns, disproportionately in the hands of old fogies. The Census report shows that income--not just wages--decreased for people under the age of 65 by .5% while increasing by 2.8% for people over 65. This foreshadows the generational divide that is going to really become salient when the baby boomers start retiring.

crush41 said at September 2, 2006 7:44 PM:

Also, blacks suffered a .8% decrease in median income, the only racial group to do so. This is further evidence that Hispanic immigration is hurting America's most destitute--the one's least able to shake off its negative effects.

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