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I disagree with this conclusion, and I tend to disfavor the PCE. The argument is that employers are spending more on benefits, therefore pay has not actually fa

I disagree with this conclusion, and I tend to disfavor the PCE. The argument is that employers are spending more on benefits, therefore pay has not actually fallen. However, the largest component of the difference between the PCE and CPI is based on employer-provided healthcare; in the US, healthcare spending has been growing at faster than inflation for decades, and medical costs are one of the main avenues of wealth transfer (for example, $300 billion a year, 2% of GDP, goes in patent royalties to owners of pharmaceutical companies). It is a bit crap to suggest that because we are paying people more so they can pay their doctors more, for worse outcomes than anyone in the rest of the developed world, they are somehow turning out better. In any case, the fact that real wages have remained essentially flat requires us to believe that workers are fine with not having made any gains in disposable income in exchange for better benefits, which seems unlikely. Also, the fact that labor peaked in 1973, when the graph begins to diverge, should reinforce, not contradict, this argument.

harryh 10y ago
The conclusion isn't that everything is hunky dory. What he does conclude is that labor's share of income hasn't much changed. What has changed is the distribution of income between laborers. As has been noted in about a million places, gains have increasingly been going to those at the top. Your chart implies some sort of breakdown between productivity and income but does not demonstrate that productivity gains have been equally distributed. In fact, there are a lot of reasons to think that most productivity gains are going towards the top end of the labor pool as well. Due to the lever of technology, we see increasingly small (in terms of # of employees) firms serve increasingly large markets.
- astazangasta 10y ago
  Median income remaining flat is entirely consistent with productivity being absorbed by the high end.
  - harryh 10y ago
    I'm not sure what you mean by "absorbed"? My point (well Scott Sumner's really) is that there hasn't been a breakdown between pay and productivity. People are still getting paid more if they are more productive. It's just that somewhere around 1970 or so the median worker stopped getting all that much more productive. Now, maybe that's what you meant by your graph. In which case, fine. But most people look at that and they think that the median worker started getting cheated out of their productivity gains. And that's probably not what's happening.
    - astazangasta 10y ago
      I think that's exactly what happened. For example, what I described earlier, medical costs increasing at twice the rate of inflation in the US while outcomes did not improve much at all, is the median worker being cheated out of their productivity gains: it means they are paying more and getting less, while health care providers and people who own patents on drugs or medical devices get more. This change has absolutely zilch to do with changes in how productive anyone is and much more to do with how income is distributed, how property rights are enforced, how high-tech industry is regulated, etc.
      - deleted 10y ago
        [deleted]
      - harryh 10y ago
        Increased costs for health care(1) are a measure of where workers are spending their money. That's an orthogonal issue to measures of worker productivity. 1. It's a side issue, but I'd also dispute your statement that people are getting less. Life expectancy has increased ~10 years in the US since 1970.
        astazangasta 10y ago
        People in the US are getting less than in other places, in terms of health care. Other countries also haven't seen the same gap in gdp/income. Arguing that workers are less productive because they earn less is a tautology; it also requires us to believe that workers magically stopped being more productive in 1973 after decades of improvement.

harryh 10y ago

The conclusion isn't that everything is hunky dory. What he does conclude is that labor's share of income hasn't much changed. What has changed is the distribution of income between laborers. As has been noted in about a million places, gains have increasingly been going to those at the top. Your chart implies some sort of breakdown between productivity and income but does not demonstrate that productivity gains have been equally distributed. In fact, there are a lot of reasons to think that most productivity gains are going towards the top end of the labor pool as well. Due to the lever of technology, we see increasingly small (in terms of # of employees) firms serve increasingly large markets.

astazangasta 10y ago
Median income remaining flat is entirely consistent with productivity being absorbed by the high end.
- harryh 10y ago
  I'm not sure what you mean by "absorbed"? My point (well Scott Sumner's really) is that there hasn't been a breakdown between pay and productivity. People are still getting paid more if they are more productive. It's just that somewhere around 1970 or so the median worker stopped getting all that much more productive. Now, maybe that's what you meant by your graph. In which case, fine. But most people look at that and they think that the median worker started getting cheated out of their productivity gains. And that's probably not what's happening.
  - astazangasta 10y ago
    I think that's exactly what happened. For example, what I described earlier, medical costs increasing at twice the rate of inflation in the US while outcomes did not improve much at all, is the median worker being cheated out of their productivity gains: it means they are paying more and getting less, while health care providers and people who own patents on drugs or medical devices get more. This change has absolutely zilch to do with changes in how productive anyone is and much more to do with how income is distributed, how property rights are enforced, how high-tech industry is regulated, etc.
    - deleted 10y ago
      [deleted]
    - harryh 10y ago
      Increased costs for health care(1) are a measure of where workers are spending their money. That's an orthogonal issue to measures of worker productivity. 1. It's a side issue, but I'd also dispute your statement that people are getting less. Life expectancy has increased ~10 years in the US since 1970.
      - astazangasta 10y ago
        People in the US are getting less than in other places, in terms of health care. Other countries also haven't seen the same gap in gdp/income. Arguing that workers are less productive because they earn less is a tautology; it also requires us to believe that workers magically stopped being more productive in 1973 after decades of improvement.