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A Look at the Dramatic Disconnect Between Productivity and Wages, and Now the Worm Turns

IMAGE SOURCE: Investopedia

A defining characteristic of the American economy in the last 48 years is that improved productivity has not improved the compensation of the typical worker.

Now, suddenly as experienced workers have left the work force due to age, the Covid era, and the Sub-Zeros mandate policies, wages are outstripping productivity in a catch up move. In yesterday’s speech, Jerome Powell indicated that they may not be able to put the Genie back in the bottle or “look through” this development.  If labor shortages persist and wages continue rising the U.S. could see inflation pressures continue, the Federal Reserve warned in its latest monetary report to Congress.

Poor wage growth has also been the key indicator that the Fed has used to justify ultra low interest rates.

Productivity is defined as the quantity of output produced by one unit of production input in a unit of time. For example, certain equipment can produce 10 tons of output per hour. Or, if a worker produces in an hour an output of 2 units with a price of $10 per unit, then the economic value of that worker’s productivity is $20.

In a normal system, one might expect that if productive output is increasing, then labor participates in that increase by some measure.

Indeed, up until 1973, labor benefited in lock step with productivity gains. Between 1948 and 1973, productivity increased 96.7% and hourly compensation increased 91.3%.

But in 1973, that connection broke. Suddenly and ever since a 140% gain in productivity only engendered an 18% compensation gain. Until recently this trend has continued and has become increasingly exacerbated, with labor never able to gain traction even for short spurts.

In theory, when workers do not have negotiating power (“I’ll leave if you don’t pay me more”), the disconnect between productivity and wages becomes larger.

There are several macro-trends to look at to determine why wage-gain power was lost. Primarily, the main one is the influx of a new labor force that’s able to uncut the established labor force.

One factor has been falsely attributed to more women entering the work force. But the correlation does not support this.

Between 1955 and 1973, for example, the participation of women in the labor force rose from 35% to 44% with no depressive side effect whatsoever on compensation growth.

Between 1975 and 1990, a second wave of women entered the labor force (44% to 57%), during which time there was some correlation of depressed compensation growth.

But in the last 30 years, the participation of women in the labor force has been flat. This again shows very little correlation, as wage growth remained weak despite major productivity gains.

Takeaway: Over the long run, the increased participation of women in the labor force has had little impact on wage compensation other than briefly.

The other much-stronger correlation relates to the passage of the Immigration Act of 1965. It took over a decade for new immigration to kick in. The impact did not take effect until the late 1970s and 1980s. By the 1990s, the percentage of immigrants had nearly doubled from the ’70s. Then, after 2000, it had tripled — right when native labor was least able to handle large numbers of low-wage competitors.

As of 2011, the median income of native workers was $43,701. All immigrants earned $34,021. More recent immigrants arriving in the previous 10 years earned $28,256.

Simultaneous to immigration policy that significantly increased the number of less-educated migrants was the dramatic deterioration in the labor market position of less-educated natives.

One of the arguments advanced is that non-natives “take the jobs natives don’t want.” Other than perhaps low-wage agriculture, this is nonsense, as natives still comprise 52% of housekeeping jobs, 73% of janitorial labor, 66% of construction jobs, and 65% of butchers and meat processors.

The evidence of where immigration really hurts is revealed by comparing data from 2000. It shows a huge decline in the share of entry level jobs for young people and the less-educated — from two-thirds to just under half. The decline in work among the young and less-educated natives began well before the 2008 Great Recession. It’s difficult to find any evidence of a shortage of less-educated workers in the United States.

Large-scale immigration does more than kill the benefits of increased productivity for natives. It transfers the windfall to owners, capitalists and globalists (the kleptocratic sistema). That explains the real reason the usual suspects in the Kakistocracy support or wink-wink for open borders.

The sistema then subsidizes the low-wage immigrants via welfare, which is usually a local burden on natives.

  • In 2010, 36% of immigrant-headed households used at least one major welfare program (primarily food assistance and Medicaid) compared to 23% of native households.
  • Among the top-sending countries, welfare use is highest for households headed by immigrants from Mexico (57%), Guatemala (55%), and the Dominican Republic (54%); and lowest for those from Canada (13%), Germany (10%), and the United Kingdom (6%).
  • In 2010, 29% of immigrants and their U.S.-born children (under 18) lacked health insurance, compared to 13.8 percent of natives and their children.
  • New immigrants and their U.S.-born children account for two-thirds of the increase in the uninsured since 2000.
  • Of adult immigrants (25 to 65), 28% have not completed high school, compared to 7% of natives.
  • Among all (known) immigrants, 28% are in the country illegally. Roughly half of immigrants from Mexico and Central American and one-third of those from South America are in the U.S. illegally.

1994 NAFTA Free Trade: the Machiavellian Final Straw

A 2011 report from the Economic Policy Institute estimated that the 1994 North American Free Trade Agreement led to a loss of 682,900 U.S. jobs. Other estimates pin the figure between 500,000 and 750,000 lost U.S. jobs. Most were in the manufacturing industries in California, New York, Michigan and Texas. Certain higher-wage industries were particularly impacted, including manufacturing, automotive, textiles, computers and electrical appliances.

Second, job migration suppressed wages. Companies threatened to move to Mexico to keep workers from joining unions. Without the unions, workers could not bargain for better wages. This strategy was so successful that it became standard operating procedure. Between 1993 and 1995, half of all companies used it. By 1999, that rate had grown to 65%.

NAFTA put Mexican farmers out of business as well. It allowed U.S. government-subsidized farm products into Mexico. Local farmers could not compete with the subsidized prices. As a result, 1.3 million farmers were put out of business, according to the Economic Policy Institute.

This forced unemployed farmers to cross the border illegally to find work. In 1995, there were 2.9 million Mexicans living in the United States illegally. It increased to 4.5 million by 2000. The Mexican rural recession drove that figure to 6.9 million in 2007.

Unemployed Mexican farmers went to work in substandard conditions in the maquiladora program. Maquiladora is where U.S.-owned companies employ Mexican workers near the border. They cheaply assemble products for export back into the U.S. Employment in maquiladoras rose from only 120,000 in 1980 to 1.2 million in 2006. This suppressed wage compensation in the U.S.

The Final Takeaway

This is an organized system of enslavement by a stealth kleptocratic sistema. To top it all off, these bipartisan scams were reinforced with central bank policies that further redistribute wealth upward.

And now — at last — it seems a reckoning and adjustment is at hand, that even the Federal Reserve is fessing up, too.

Also employed to amplify the loot were failed “trickle down” tax policy that burdens the bottom 80% of wage earners. The burden of payroll taxes on those wage earners has doubled since 1973, while corporate taxes have been halved.

Read “Shocker! Tax Cuts in Hand, CEOs Admit They Won’t Invest Record Profits in Worker Wage Hikes”

The end result shown here is not in the least surprising. There is no coincidence – nor is this resolved by Capitalism versus Marxism false dialectic or bogus identity and manufactured race politics. This is all about kleptocratic policies planned with malice by the Crime Syndicate. To our eyes, it makes all the bipartisanship hysterics of the current year look like serious divide-and-conquer zombie mental illness.

4 Comments on A Look at the Dramatic Disconnect Between Productivity and Wages, and Now the Worm Turns

  1. One can look at the 1965 Immigration & Nationality Act as reversing the benefits of the 1924 Immigration Act signed into law by Calvin Coolidge, placing quotas favouring people of European descent

    Jeff Sessions famously said the 1924 Act was the foundations of the post-WW2 prosperity of USA workers … the 1924 Act likely helped prevent the 1930s Depression in the US from being worse

    The 1924 Act was further bolstered by aggressive enforcement, most notably by Dwight Eisenhower’s 1954 Operation Wetback, deporting as many as 1.3 million illegals

    The ‘golden age’ of US worker incomes … soon to be demolished by the late 1960s immigration wrecking ball

    So we have –

    Late 1800s – early 1900s USA: Big immigration waves and robber baron capitalism

    Late 1900s – early 2000s USA: Big immigration waves and robber baron capitalism

    • I remember looking at wage growth for the late 19th century and being surprised how low it was given the amount of industrialization taking place. And the reason I was doing this was to rebut a pro-immigration argument.

  2. When I got to Figure A, I paused to consider what might be the cause of the uncoupling of productivity and compensation. My two leading candidates were immigration and offshoring. The only thing I am surprised about is why productivity hasn’t increased at an even less rapid rate. Perhaps only the activities with the highest productivity was retained domestically although employing a smaller fraction of labor. The post-1973 compensation levels are probably overstated given that many of the immigrants probably work off the books.

    • One, and a major aspect of the true scam being perpetrated on the true U.S. citizen worker is the i.r.s.’s ploy of conniving workers in to believing wages, which by definition, are not taxable, are the same as “income”. Claiming possession of the benefit of one’s labor [i]s the definition of slavery.

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