May 2, 2012

Falling Ever Farther Behind

Productivity is up! Wages are down! Makes perfect sense:

Economic fairness is one of the persistent themes of the 2012 election, and in that spirit the liberal Economic Policy Institute is revisiting the plight of the U.S. worker over the last several decades.

Many of the institute’s findings, which will be presented in greater detail in the forthcoming edition of “The State of Working America,” will be familiar to economists who study income inequality. But they provide a stark illustration of the fact that the vast majority of workers have been closed out of the country’s gains for nearly 40 years.

Particularly striking is the fact that for years leading up to the 1970s, productivity gains were broadly shared, as theory predicts. Then the linkage abruptly broke. What explains the shift?

“The big shift is really in the ’80s, which I would attribute to [Fed Chairman Paul] Volcker’s recession in 1980-82, which killed workers,” said Dean Baker, co-founder of the Center for Economic and Policy Research, who has conducted similar studies. “A high dollar in the mid-80s amplified this effect. You also had the anti-union policies of the Reagan administration.”

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