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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