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Angry Americans

March 26, 2024 | Posted in: Insights

While the U.S. certainly has many shortcomings, I am constantly amazed that Americans are so angry and divided, especially given the strength of our economy, the huge gains in life expectancy over the last century, and the fact that we enjoy a high degree of safety and security versus much of the rest of the world. One explanation for this negative sentiment, among many others, may be captured by the following chart.

First, a brief tutorial. Improvements in our standard of living arise from productivity gains which are defined as increases in output for each hour worked. Productivity gains allow employers to increase wages while also maintaining corporate profitability. Note that wages and productivity grew in concert from 1948 until roughly 1979 when the two lines diverged. Since 1979, productivity has grown at twice the rate of wages. Most Americans understandably are not aware of these economic relationships, but I believe many have a visceral sense that they are not fully participating in the economic growth they help create.
The reasons for this divergence are complex and quite controversial. So, rather than wade into a maelstrom, I simply list a number of the most common explanations:

• Decline in the power of trade unions.
• Consolidation of corporate power due to lax anti-trust enforcement.
• Offshoring of some jobs and globalization.
• Excessive income gains among highly paid workers that are not enjoyed by typical workers.
• Automation resulting in a shift toward technology rather than labor in many industries.
• The rise of “superstar” companies that are knowledge-intensive resulting in a disproportionate allocation of value created to capital rather than to labor.
• Only modest growth in the minimum wage over time.
• Deregulation.
• Slow overall productivity growth.

There is enough here to anger those of every political persuasion so I will avoid recommended solutions in favor of the simple statement that failure to confront this gap may well contribute to an already toxic environment.