Productivity: Who Gets the Benefit?

The chart compares labor output with household income in the United States in the 20 years from 1987 to 2007. We see that the labor productivity increased. The output from an hour of labor increased 55%.

Labor provides the income for most households in the United States. During the same 20 years, median household income increased 10%.

Output per hour of labor increased markedly, but the rewards to labor increased only modestly. We ask:
1. Is it fair that workers didn’t get a share of the increases in the productivity of their labor?
2. Who took the workers’ share?


Let us consider the second question first. The proportion of total income that our economy distributes to wealthy people corresponds with the increase in productivity. As productivity increased, so did the incomes of the wealthy. Generally, the incomes of the workers increased little. The rich took the additional value that workers produced.

Regarding fairness, our economy is an artificial distribution engine. It distributes useful goods and services and wealth to the population. Collectively, we created the rules and customs of our economy. If the economy doesn’t distribute goods and services and wealth fairly, then we can change it.

References:

1. United States Census Bureau, Historical Income Tables (http://www.census.gov/hhes/www/income/data/historical/index.html, retrieved March 16, 2011).
2. United States Bureau of Labor Statistics, Multifactor Productivity Total Economy (http://www.bls.gov/mfp/mprdload.htm, retrieved March 10, 2011).
3. Daniel Brockman, Share of Income (http://daniel-brockman.blogspot.com/2010/06/share-of-income.html, June 9, 2010).
4. Daniel Brockman, Income Inequities (http://daniel-brockman.blogspot.com/2010/06/income-inequities.html, June 2, 2010).

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Disclosure: At this writing, Daniel Brockman owns shares in NASDAQ:PEET.