Scott Winship carefully investigated trends in worker pay over the past 50 years. (HT GMU Econ alum Dominic Pino) Here’s the Executive Summary:
Doomers on the political left and right agree that economic growth has failed to translate into higher wages for American workers, with some claiming that pay has barely risen in 50 years. Such sentiments have been buttressed by flawed analyses that, comparing apples to oranges in a variety of ways, have found that the pay received by workers has not kept pace with productivity gains.
This report discusses the problems with those analyses before showing—in six different ways—that worker pay has kept up with productivity growth. Whether the starting point is 1973, 1948, or 1929, aggregate pay is exactly where productivity growth would predict.
However, after keeping pace with productivity growth for 25 years, the pay of the median worker has lagged gains in productivity since the early 1970s. In part, this relative stagnation likely reflects a fanning out of worker productivity. Productivity appears to have grown unequally across industries, firms within industries, and workers within firms. As a result, growth in the productivity of the median worker has slowed, causing growth in the pay of the median worker to slow.
The slowdown in median pay also reflects the particularly slow growth in pay among men. For all but the highest-paid men, compensation has grown more slowly than it has for the lowest-paid women. Decelerated pay growth for men reflects the transition from a period in which men occupied a priv- ileged place in the economy. First, being dominant in the high-productivity goods-producing sector through the mid-20th century, men saw their pay decelerate over time as employment shifted toward lower-productivity service-sector jobs. Women were already disproportionately working service jobs and so were less affected, and falling barriers to high-paying jobs left women better off, even as men faced stiffer competition.
Second, men benefited earlier in the century from median pay growth that exceeded productivity growth and remained elevated for decades. Fifty years ago, median pay was higher than what productivity growth would have dictated. Many working- and middle-class men received “breadwinner rents”—pay in excess of their marginal value to their employer—because of the widespread ideal that a husband should be able to support a family on one income, while mothers should not work. As women’s workforce participation increased in the 1970s and 1980s, this norm eroded, and men endured a period of slow wage growth until productivity levels had risen enough to justify stronger growth in pay.
Third, as the traditional male breadwinner role weakened, marriage declined. Along with reduced fertility and greater economic opportunities for women, the decline in marriage led men to prioritize values other than maximizing their pay.
The painful transition for men is largely behind us, and the median male worker has seen significant pay growth over the past 30 years. Policymakers should prioritize raising productivity growth and helping the children of working- and middle-class Americans obtain the skills and knowledge they need to exploit fully the economy’s strength. And we should devote more attention to the special problems facing men in the modern economy.
Remember when Republicans cared about budget deficits? Alas, spending discipline like free trade has fallen out of fashion on the political right. Some Republicans are now linking their robotic arms with Senate Majority Leader Chuck Schumer to spend hundreds of billions of dollars on artificial intelligence.
If China is “going to invest $50 billion, and we’re going to invest in nothing, they’ll inevitably get ahead of us,” Mr. Schumer said Wednesday in unveiling a “roadmap” for AI policy with Republicans Mike Rounds and Todd Young and Democrat Martin Heinrich. Invest in nothing? Didn’t Washington pass massive climate, infrastructure and semi-conductor spending bills?
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Goldman Sachs estimates that U.S. private investment in AI will total $82 billion next year—more than twice as much as in China. Big tech was late to catch the AI wave. But businesses of all sizes are now using AI to develop medical treatments, improve productivity and logistics, assist customers and more.
Government has been a laggard in adopting AI, but it usually is with new technology. It’s true Beijing is spending heavily to boost its AI capabilities, especially for military uses. However, one reason the U.S. leads China in innovation is that about three-quarters of R&D is directed by private industry. Beyond pure research that private actors won’t do, government is a poor allocator of capital.
Much of Washington’s AI spending would be redundant. Many universities that Republicans want to de-fund because of their response to antisemitism would ironically benefit from the largesse. So would progressive think tanks that want to hamstring business innovation and say AI discriminates against minorities.
Bruce Yandle wisely warns that “when Biden and Trump agree, consumers should worry.” Two slices:
Joe Biden and Donald Trump agree on at least one thing. I know what you’re probably thinking: a little more consensus might be good for the country. But when we’re talking about both major presidential candidates calling to limit the flow of goods to U.S. consumers, shouldn’t we be worried? Each has been touting trade policies that could lead to even higher prices, another challenge to an already stressed Federal Reserve, and slower growth for the country.
Couched broadly in terms of countering China’s aggressive efforts to stimulate its industrial economy, Biden and Trump want wide-ranging higher tariffs on that nation’s electric vehicles and other products. Relatedly, both express concerns about maintaining American manufacturing muscle for national security purposes and gaining a more favorable outcome from the ongoing leadership struggle among the world’s great powers.
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Here’s where economics and politics diverge. Nationalism may attract a meaningful political following, but higher tariffs mean higher prices for the directly affected goods and even more widespread price effects later. A substantial, conclusive body of research tells us as much. Along with the higher prices on imported goods, we should be aware that tariffs are shown to lead to slower economic growth. This is the last thing we should want for an economy that’s been skirting a recession.
So, what about ordinary consumers? Don’t they matter?
Somehow the voices of inflation-weary American consumers no longer seem to be heard when Chinese goods enter the picture. Moreover, lots of people who lack economics degrees understandably don’t realize what protectionism does to their pocketbooks. Neither major political party apparently cares about telling them, or protecting the ability of these individuals to, unencumbered by a Big Brother government, make real marketplace choices about which cars to buy, which shoes to wear or which services to obtain.
Instead, our politicians speak as though the decisions we make while shopping for ourselves and our families are mostly about favoring one country or another. Even after years of supply-chain interruptions, high inflation and resulting high interest rates stretching millions of budgets, they strangely refuse to recognize that international competition helps the American voter and consumer, or that there is something American about being free to choose.
Juliette Sellgren talks with Ryan Yonk about China.
