I’ve been arguing for a while now that a good deal of our economic trouble may be structural rather than cyclical; i.e., what we’re experiencing may be driven as much or more by permanent changes in the economy than by temporary changes such as recession followed by recovery. (For example, new business formation is a much less significant driver of job creation, a trend visible for more than a decade. And median household income has been stagnant now for roughly a generation, going back to the mid-’70s.)
Economist Jared Bernstein, writing on his blog, offers another piece of evidence. Growth in productivity has long meant growth in jobs and pay, a relationship that made economic sense: The more efficiently a worker can produce widgets, the more valuable he becomes and the more widgets he and others will be hired to produce.
But is there a point at which that is no longer true? Perhaps in time, the world has more or less all the widget-producing capacity it needs. Perhaps widget productivity is increased by moving labor-intensive jobs off-shore, producing higher profits for investors and higher pay for CEOs who manage the process, but leaving fewer jobs for Americans. And perhaps technology simply lets a business accomplish a lot more with fewer people on the payroll.
Something’s clearly going on, because as the chart below from Bernstein suggests, productivity growth and job growth are no longer closely linked:
Since the end of World War II, productivity, wages and employment had increased together. Beginning in the late to mid-1970s, wages decoupled, meaning productivity and employment kept rising but average wages did not. Workers stopped sharing in the financial benefits of their greater productivity.
And then, in the late 1990s, employment decoupled as well. Productivity still kept rising, but the number of jobs did not. Like wages, employment stagnated.
The sector most dramatically affected by that change is of course manufacturing. You hear a lot of complaints about U.S. manufacturing jobs disappearing overseas, and it’s a visible phenomenon. A factory closes in Georgia, putting hundreds out of work, and reopens in Mexico, China or Vietnam. Overall employment in the U.S. manufacturing sector is down 31 percent since the mid-’70s.
But here’s the rarely heard second half of that story: While the number of jobs in manufacturing has fallen by roughly a third, the U.S. manufacturing sector produces twice as much today as it did in 1975, even after adjusting for inflation. It is a healthy, highly profitable and highly productive enterprise. That’s not a fact mentioned often in the political debate, because it contradicts the favored narratives of both the left and right, but it’s true nonetheless.
As I’ve noted earlier, in policy terms neither party has come to grips with the implications of such change. They continue to assume that the economy functions more or less as it did 30 or 40 years ago, and that the old debates about the old policies are still relevant.
In purely political terms, however, the GOP is well ahead of the Democrats. It has at least identified an alleged villain — government and taxes — to blame for the economic disappointment experienced by millions of Americans, and in political terms it doesn’t matter if the explanation is completely bogus: A bad explanation is easier to sell than no explanation.
For the past 30 years, driven by the GOP narrative, we’ve been cutting federal taxes particularly on the wealthy and on corporations. But as the charts above demonstrate, it has done nothing to alter the underlying trends, which suggests that the problem has been misdiagnosed.
At some point, you’d think we’d be ready to try a different approach, but that doesn’t seem likely. The Republicans insist that we need to do still more of what clearly hasn’t worked, and the Democrats still insist that … well, I’m not sure that they’re insisting on anything at all, which is part of the problem.
– Jay Bookman