Labor Day Blues

Labor Day Blues

When did Labor Day speeches start sounding like eulogies—tinged with regret, dwelling on losses, and offering mostly memories to those left behind?

The answer can be found in the arc of postwar economic history, which breaks starkly and decisively in the middle-1970s. In fairly short order, the United States faced an unprecedented combination of trade and budget deficits, sustained unemployment, and runaway inflation. Some of this reflected the natural and inevitable evolution of an international economy in which American leadership had run its course. Some of this was caused by external shocks (the OPEC embargo and the spike in energy costs). And much of it was self-inflicted (the fiscal and international impact of the Vietnam War).

But, more importantly, the political response to these economic conditions dramatically changed the terms of employment, labor relations, and economic security. Inflation wiped out the value of the minimum wage, which peaked in 1968. The National Labor Relations Board retreated from protecting organizing rights, and watched union membership shrink from almost a quarter of private sector workers (at the end of the 1960s) to less than 7 percent today. Macroeconomic policy chose price control over jobs, and let high rates of unemployment undermine wages. And the pool of good jobs—those offering a living wage alongside health and retirement security—dried up even faster.

The results? Wages and incomes for most Americans grew with the economy into the 1970s. After that, only the richest saw any gains. Productivity and profits (with a few recessionary interruptions) remained fairly robust even after the crucible of the 1970s, but their distribution skewed sharply.

The graphic below offers a summary overview of that history, tracking trends in various inequality measures and metrics since the end of the Second World War. The basic pattern is not hard to discern: against a backdrop of fairly steady economic growth (the grey bars show gross domestic product in inflation-adjusted 2012 dollars), the distribution of that growth pivots around the late 1970s.

In the thirty-odd years before 1979, the share going to the richest 1, 5, or 10 percent falls, the average hourly earnings of production workers almost double, the share of income going to labor and capital is fairly constant, and the inequality of family incomes falls slightly. In the 30-odd years since 1979, the share going to the richest 1, 5, or 10 percent takes off, the average hourly earnings of production workers slip a little, the share of income going to labor shrinks, and the inequality of family incomes widens. The second graphic presents the same trends as indexed values: each is set at 100 in the index year (1947 or 1979), and then plotted as a percentage change from that point. This allows more direct comparison of dissimilar measures, and underscores the dramatically different trajectories of these basic measures, before and after the watershed of the 1970s.  

Colin Gordon is a professor of history at the University of Iowa.