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March 29, 2007
The Broken Link: New Evidence
Once upon a time in America, and in Pennsylvania as well, when worker productivity went up, so did wages: wages and productivity were linked. Workers were rewarded for working more effciently and so shared in economic growth.
No more.
As KRC research has shown (in The State of Working Pennsylvania 2006 and more recently in Wages Still Flat Despite Strong Economic Growth in 2006) the link between wages and productivity is broken.
Form most workers in Pennsylvania in the nation as a whole, adjusted for inflation wages have hardly grown at all in recent years and have fallen for many, despite growth in the economy that's led to record corporate profits.
Now comes further confirmation of the broken link.
The New York Times today reports on a new study by economists from the University of California and the University of Paris which looks recently released federal tax data and finds that income inequality grew significantly in the U.S. during 2005, "with the top 1 percent of Americans--those with incomes that year of more than $348,000--receiving their largest share of national income since 1928 . . . The top 10 percent, roughly those earning more than $100,000, also reached a level of income share not seen since before the Depression."
Why should one worry about the broken link between productivity and wages? Because, over time, rising inequality may erode the public's faith in the ideals that have anchored the American Dream: equal opportunity for all, fair reward for hard work, individual equality before the law regardless of class or social position, and democracy.
The potential political impact of growing economic inequality is of growing concern to observers of all points on political spectrum. In July 2005, then Federal Reserve Chairman Alan Greenspan said in testimony before Congress that ". . . a free market democratic society is ill-served by an economy in which the rewards of that economy [are] distributed in a way which too many of our population do not feel is appropriate. . . I think it is a major issue in this country." (Testimony before the U.S. Senate Banking Committee, July 21, 2005)
Posted by Publius at March 29, 2007 01:55 PM