Rising Productivity, Deepening Inequality

Last January, the New York Times reported that assembly line workers at Detroit automobile factories, who have been earning around $28 per hour, would be “bought out” and gradually replaced by workers earning as little as half of that. This would save companies like Ford and Chrysler $30,000 per lower paid worker per year, in addition to reductions in benefits. It would also mean—though this escaped the Times reporter—that output per hour (productivity) would remain unchanged or, more likely, continue to improve (as it has hitherto in the industry). “Two-tier agreements, double-digit wage cuts, health care cost shifts, work rule changes, and defined pension… rollbacks have occurred in one major contract settlement after another… In one industry alone, airlines, wage and pension concessions given back to employers since 2001… totaled over $15 billion,” writes Labor Notes (January 2008). Yet, output per hour in air transportation rose at an average annual rate of 2.9 percent between 1987 and 2005, according to the Bureau of Labor Statistics (BLS); it rose 3.8 percent in motor vehicles manufacturing. These two examples illustrate what is happening to the bargaining power of trade unions—a steady weakening, a loss that began with the defeat of the air traffic controllers strike in 1981 by Ronald Reagan’s administration, a loss, therefore, that is political in nature. And it is in this sense that we must view the widening gap between the advances of productivity and the stagnation of working people’s incomes.

The Economic Policy Institute (EPI) calculates that between 1973 and 2004, output per employee hour in the nonfarm business economy rose 76 percent, while median family income in constant dollars increased by only 22 percent. No such gap appeared during the earlier post-World War II period. Between 1947 and 1973, both productivity and median family income grew by an identical 104 percent. This parallel movement was, perhaps, historically unique, ascribable to the vigor of the labor movement in those years, as well as to lower levels of immigration and to an international competition that took place chiefly among countries with similar labor standards—that is, labor costs were not an important competitive factor. As is well known, this is no longer the case; the relatively low cost of labor has become a much proclaimed factor in the “comparative advantage” of developing countries, which are now a key source of American imports and the loci of U.S. investment.

The 22 percent increase in median family income should not obscure the fact that family income frequently consists of the contributions of two, at times three, workers. BLS data show that average weekly earnings in nonfarm private industries, in constant dollars, have been steadily declining; in 2007 they had dropped by 15 percent since the early 1970s. This decline is probably linked to the growing prominence of lower paying industri...