The Sin of Low Wages

Republicans and Democrats alike are yammering about how they are going to create jobs and restore prosperity to America. The fact is they are not going to accomplish those goals until they recognize and fix a major glitch in our economy, the failure of wages to keep up with productivity.

According to data collected by the Bureau of Labor Statistics the wages of our hourly-paid workers rose steadily as their productivity increased from 1950 to the early '70s. The recession of 1973-75 knocked us off that track and since then wages have increased only about 13% while productivity more than doubled. What did this do to the economy? It put a strangle hold on the purchasing power of our workers, the people who are most likely to spend what they earn and buy what they produce. 

As productivity increased but spending didn't, our manufacturing and marketing sectors tried to maintain profitability by cutting prices and jobs. They also siphoned more cash out of the system by increasing executive pay faster than profits were growing. Meanwhile working families, thinking that they should be part of the economic boom, bought houses on shaky mortgages. Then the whole scheme collapsed in the Great Recession. But it all started with the failure of wages to keep up with productivity.

Have you noticed that the stock market has fully recovered while employment has not? That is because the stock market is where executives and other rich people put much of the money they can't spend. But stock prices have almost no effect on employment or on production of goods and services or on spending for those things. If we want to jump start our market economy we must find a way to put more money in the pockets of workers and their families. 

You don't begin by creating jobs, you begin by spreading cash around. When it is spent the spending will create jobs. And the best way to spread cash around, if you don't want to just give it away, is to increase wages.