Public and private sector workers are in this together!

Public and private sector workers are in this together! March 17, 2011

Have a look at this chart, courtesy of Ezra Klein, based on research by Lawrence Mishel and Hiedi Shierholz. It basically shows that both public and private sector workers saw stagnating real wage growth over the past few decades, at a time when productivity grew substantially.

From 1989-2010, productivity (output per worker) jumped by 63 percent. Classical economic theory suggests that real wages are based on productivity. But as we all know, the real world does not resemble the neat model of a competitive market. What matters is bargaining power, and workers saw their bargaining power eroded over this period (in the three decades after the Second World War, real wages pretty much kept track with productivity growth). So, while productivity was up 63 percent, real wages were up 12 percent, with barely any difference between public and private sector. Real hourly compensation, which includes employer-provided benefits, grew a bit more (21 percent public sector, 18 percent private sector) but still far below productivity.

The chart above is for college graduates, which are the luckiest workers, with real wages growing by 19 percent for private sector workers and 10 percent for public sector workers (so much for the public sector being overpaid!). For those with only a high school education, real wages grew only by 5 percent in the private sector, and 2.5 percent in the public sector.

Bottom line: income grew a fair amount over this period, but it didn’t go to workers. The richest 1 percent took home 56 percent of all the income growth over this two-decade period. Why did this happen? Why did we let this happen? Why do we let the vested interests pit private and public sector workers against each other, when they are both being left behind and exploited? After all, this is a matter of basic fairness. It’s a matter of justice – as Pope Leo XIII put it, of “defrauding man of what his own labor has produced”.

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  • Mike McG…

    I´m sympathetic to MM´s argument here but, apropos of the public/private income disparity, it seems to avoid the prominent issue of aggregate compensation: salary plus benefits. Do Mishel and Shierholz perform this analysis?

    • Yes, that’s the difference between “real hourly wages” and “real hourly compensation”. The latter grew faster, but still nowhere close to productivity.

  • SB

    Define “productivity” and explain how it can be precisely measured in this way.

    • It’s real output divided by labor input, either number of workers or (more accurately) number of hours worked. Real GDP then can be written as productivity times labor input. Productivity, then, is the key driver of growth.

  • The right is always about class warfare, as long as it’s internal class warfare. Private sector workers against public sector workers, documented workers against undocumented workers, domestic vs. foreign, unionized against un-unionized, etc. But once people start looking towards bosses, i.e. the ones with the actual money, then it’s “class warfare”, “punishing success”, and so on. Look to the unionized worker who doesn’t do as much as you, and forget the boss who just sits in his office and collects the surplus value from your labor. Only in America does that make perfect sense.

  • If a bad teacher from 1992 is still a bad teacher in 2010, the fact that U.S. made flash memory sticks are made cheaper in 2010 by advanced robotics…..does not mean the bad teacher should get a raise funded in part by diner waitresses who have no medical coverage or 401k.

    • Kurt

      Bill,

      1. What U.S. memory sticks?

      2. Diner waitresses without insurance or 401(k)s are not paying teacher salary increses.

      • Kurt….

        http://www.kingston.com/company/default.asp

        http://www.huffingtonpost.com/social/verycold/worst-teacher-pay_n_831417_79581315.html

        All poor groups are paying landlord property taxes within their rent…taxes go up….waitresses rent goes up.

        • Kurt

          Bill,

          1. I am impressed. Kingston has only shipped 92% of their production jobs overseas (mostly to Red China where Catholics can work for slave wages as their religion is oppressed). If you buy Kingston’s product, you actually have an 8% chance it was made in the USA!

          2. Oh my! All taxes land on the poor even those taxes on the rich. You know, if working people are as powerless as you suggest and the bosses and landowners as quick to never part with a dime, all more justificiation for unions — the stronger the better.

          • Kurt

            And if I may amend and extend, earlier this week, the House Republicans issued a report on cutting government spending in which even they admitted (buried in the report, but showing their real agenda) that their budget proposal will actually depress wages in the private sector as “a smaller government workforce increases the available supply of educated, skilled workers for private firms, thus lowering labor costs.”

          • China is starting to reciprocate and certainly Japan has manufactured cars here for awhile:

            http://usa.chinadaily.com.cn/epaper/2011-03/11/content_12155915.htm

      • “Approximately 70% of the average New Jersey property tax bill goes to fund education. About 77% of the school tax bill is for salaries and benefits.  By simply looking at the facts, one can easily deduce that teacher and administrator contracts are to blame for our high property tax bills. In some cases, it is true, but let’s consider another aspect of the property tax equation.”

        from.
        http://solutionsfornewjersey.com/blog1/?p=621

        • Paul DuBois

          Using this logic we can blame any wage earner for the high cost of the product they produce. If I made less money as an engineer for automotive components, cars would cost less. This is silliness! The same conservatives that want to blame the poor quality of our education system on the poor quality of our teachers, now want to cut their wages and benefits. From my personal experience, I did not become a teacher because the (non-union) teachers in my public high school did not make enough money to support a family. Since I wanted to raise a family, I went into engineering instead. I can not guarantee I would have been a good teacher, but I am sure there are several people who could have been good teachers who made the same calculation.

          And I know too many teachers in public and private schools to believe teachers are at fault for the failures of our system, but that is another argument.

  • Kurt

    Define “productivity” and explain how it can be precisely measured in this way.

    Of the many matters economists debate, I don’t think the measure of productivity is much disputed.

  • DarwinCatholic

    Hmmm. So help me out here. Roughly a third of public sector workers are unionized, while only 7% of private sector workers are unionized. Why is it that for both college educated and non-college educated workers the public sector workers have seen their wages rise with productivity less than private sector workers.

    If unions were the solution to this problem, shouldn’t the public sector workers have been much more successful, since they have been increasing in unionization rates since the 50s while private sector workers have been decreasing in unionization?

    • SB

      You’re thinking too logically there, Darwin. Cut that out.

    • kurt

      Would not you agree that the more accurate comparison would be union and nonunion workers in the same craft or trade?

  • SB

    They may not dispute it, but that doesn’t mean it’s a trustworthy number. See Oskar Morgenstern’s famous book “On the Accuracy of Economic Observations.”

  • digbydolben

    Trust DarwinCatholic to be here ALL THE TIME, to provide any demographic or actuarial statistics that will somehow divert attention from the MORAL issue (affirmed repeatedly by the religious hierarchy he claims to owe allegiance to)that Christian social justice REQUIRES that the dignity of the labourer be affirmed by his human right to speak collectively to his employer, as his equal.

  • Cindy

    http://www.hollandsentinel.com/opinions/x13292164/COLUMN-American-workers-got-what-they-deserved

    Minion. This is one of the better articles that I have read out there. I just like your writings so much so, that I wanted to share this with you. I am not sure if you saw this, so if not, I am glad to share it with you.