08 May 2010

Ripped off: Explaining America in one graph

If I had to choose only one graph to describe the last 50 years of American politics, it would be this one:

I've taken the chart from an article by Jonathan Tasini. It shows that American wages have been stagnant since the 1970s even as productivity has almost doubled. That's a bit abstract, so here's something a little bit closer to home:

If the lines had continued to track closely together as they did prior to the 1970s, the minimum wage would be more than $19 an hour. The minimum wage!

The current national minimum wage is $7.25. Roger Bybee comments that this difference, which would be a big deal for the average worker, adds up to about $3 trillion a year that has been redistributed upwards. If we asked for that in $1 bills, it could wrap around the equator over 8 times.

Tasini notes that that growing gap lies at the root of the latest financial crisis. Wages never increased, so consumption (a key driver of the US economy) could only increase only by piling on debt. And once debt service costs got too high, the bubble was bound to burst.

While this chart helps to explain many things, it demands even more explanations. For example, why did the social compact described by Tasini - "if you worked hard and became more productive, you would see that sweat of the brow in your wages" - break so dramatically? The real virtue of this chart is that it can't easily be explained away with hand-waving gibberish about globalization or knowledge economies. Understanding how it happened requires asking a lot of questions about culture, history, politics, technology, race, industrial organization, etc, etc. Bybee does offer a fairly succinct answer:

There are three chief reasons why the $3 trillion has been sucked upward. First: U.S. corporations have used the threat of relocation to Mexico or China to ratchet down US wages.

Second, millions of Americans have lost the right to bargain over their wages as heavily-unionized manufacturing plants have been shut down and often relocated in low-wage nations. We have lost 5.6 million industrial jobs--about 32% of the total--since 2000 alone.

Third, the right to form unions has suffered a de facto repeal. Employers realize that they can intimidate and fire pro-union workers (over 31,000 in 2005 alone, according to State of the Unions author Philip Dine) without repercussions, so an atmosphere of fear and anxiety haunts American workplaces.

In short, the difference between those two lines - the one, productivity, surging upwards and the other, wages, flatlining - is bargaining power. But asking how the current state of affairs has evolved is a complex question! I think that it's significant, for example, that only 41% of Americans have a favorable view of trade unions even though most of the rights we enjoy in the workplace exist not due to employer's munificence but to union activism.

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