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EconomicPolicyInstitute April 27, 2012

In his new report The wedges between productivity and median compensation growth, EPI President Lawrence Mishel reveals why the vast majority of workers have not benefited from productivity growth in the United States since the mid-1970s. Unlike the period from 1948 to 1973—when workers’ pay grew in tandem with productivity, resulting in higher living standards across the board—since 2000 we have seen the largest divergence between the growth of productivity and a typical worker’s compensation.

Mishel identifies three “wedges” that have stood between productivity growth and the experience of American workers since 1973, and especially in the past decade:

  • The share of overall income received in wages by workers has decreased; correspondingly, the share accruing to wealth holders via unearned income (dividends, interest, profits) has increased.
  • The compensation of the median worker has grown much more slowly than compensation for the highest-paid workers.
  • Workers have suffered worsening terms of trade, meaning the prices of things workers buy have increased more quickly than the prices of things workers produce.

“We are often told that greater competitiveness and higher productivity are the keys to higher living standards,” said Mishel. “In fact, productivity growth only establishes the potential for improved standards of living. In the past four decades, and especially recently, it has not translated into proportionate gains for working families.”

Mishel explains that the divergence of pay and productivity is largely responsible for the growth in income inequality in the United States. The new report previews data from the 12th edition of The State of Working America, which will be released in August.

Economy expanding too slowly to lower unemployment significantly

Today’s data from the Bureau of Economic Analysis showed that gross domestic product grew at a 2.2 percent rate in the first three months of 2012 and confirmed a long-running pattern: The U.S. economy is clearly expanding, but it’s expanding too slowly to steadily and significantly reduce joblessness. More fiscal support remains the surest way to boost near-term growth to pull down the unemployment rate. The fact that most of the policy debate is instead focused on just how fast this support will be ramped down in coming quarters is a sign of how detached this debate has become from economic reality.

A tale of two economies

In summer 2010, the UK’s newly elected conservative government passed and implemented a large austerity budget that was heavily weighted to spending cuts—80 percent of the total consolidation—and included an average 25 percent cut to non-health domestic departmental spending. This week’s Economic Snapshot shows that Britain’s austerity package caused the British economy to slow significantly and its unemployment to rise. In contrast, the U.S. economy, which avoided austerity on the massive scale that Britain adopted, has grown consistently (albeit more slowly than what’s needed) and added more than two million jobs in the last year and a half.

A conversation with Paul Krugman

This upcoming Wednesday, May 2 at 3 PM, the Economic Policy Institute will welcome Nobel Prize-winning economist and New York Times columnist Paul Krugman to discuss his new book, End This Depression Now!

During the discussion, Krugman will explain the urgency of fixing the nation’s jobs crisis and why everyone, from concerned citizens to decision makers, have a vested interest in focusing on solutions that truly seek to restore the nation’s labor market and economy. Following the talk, Krugman will address audience questions and sign copies of his book.

Copies of End This Depression Now! will be available for purchase. The book walks the reader through the financial crisis that triggered the greatest downturn since the Great Depression, outlines how policymakers have failed to address it adequately, and details how they have instead focused on deficit reduction and other distractions.

To watch a live webcast of the event or view the video after, look for details here.

And watch this EPI-produced video, “Krugman: An Indispensable Man.” In the video, Krugman shares his vision for a decent society, discusses the radicalizing impact of the policy debates of the last decade, and reveals his philosophy on making our society a better one for all.

Don’t cut benefits to protect benefits

In a statement in response to the 2012 Trustees Report on the financial status of Social Security, EPI Vice President Ross Eisenbrey countered the prevalent myth that Social Security will inevitably run out of money and cautioned against prematurely cutting benefits. “Even in 2033, when the multi-trillion dollar buildup of funds for the baby boomers is used up, there will be hundreds of billions of dollars of contributions to the trust fund, and Social Security will continue to pay three-fourths of promised benefits,” wrote Eisenbrey.

He went on to explain why reducing promised benefits is a bad thing and how we can avoid taking this drastic step: by making better-off Americans pay the same Social Security tax rate as average Americans.  “The loophole that shelters all but a tiny portion of millionaires’ income should be closed. Warren Buffett and Mitt Romney should pay Social Security taxes at the same rate on their income as their secretaries pay on theirs,” he explained. The only way to avoid benefit cuts is by raising more revenue, which we are very capable of doing, he concluded.

EPI around town

EPI Vice President Ross Eisenbrey and immigration policy analyst Daniel Costa met with top officials of the U.S. Citizenship and Immigration Service (USCIS) on Thursday, April 26, to discuss the administration of the L visa program, which provides for intra-company transfers of foreign workers from a multinational corporation’s home operations to the United States. After reports of widespread abuse of the visa,  USCIS and the State Department began more careful reviews of requests for L visas.  In response, the companies that use these visas began a campaign to relax the review process and speed the admission of foreign workers, especially from India. In recent years, 4 of the top 5 users of the L visa have been Indian outsourcing companies, whose use of the L visa has displaced thousands of US high tech and accounting workers.

Costa and EPI Research Associate Ron Hira had written to USCIS Director Alejandro Mayorkas on March 26, 2012, documenting numerous problems with the L visa.  They argued strongly that the agency’s rules and the review process should be tightened rather than relaxed, and Eisenbrey and Costa repeated that message in the meeting on Thursday with Director Mayorkas, his general counsel and other officials of the Department of Homeland Security. They were joined by representatives of the AFL-CIO and the Institute of Electrical and Electronics Engineers.

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