WASHINGTON (December 16, 2014) – Numerous books and research studies, most notably Thomas Piketty’s Capital in the Twenty-First Century, have argued that almost all the gains from increased U.S. productivity growth have been accrued by the wealthy, with the rest of us getting almost nothing. This view has now become predominate in Washington economic circles and is having a significant impact on policy development.
Why does this matter? Because if it’s actually true that productivity no longer benefits most workers, then why should elected officials do the hard work of advancing pro-productivity policies like corporate tax reform, investment in science and technology, and the development of sector-based productivity strategies. Better to concentrate their efforts on policies to redistribute gains to the bottom 90 percent.
In the new report, Was JFK wrong? Does Rising Productivity No Longer Lead to Substantial Middle Class Income Gains published by the Information Technology and Innovation Foundation (ITIF), labor economist Stephen Rose uses new data to dispute these dismal findings and present a more balanced picture of the impact of productivity gains on the standard of living for all Americans. Rose argues that there are significant limitations to the analysis of researchers such as Piketty and explains that most Americans actually enjoy a higher standard of living today than Americans 30 years ago.
“Piketty and other advocates of the message that productivity no longer benefits average American workers are wrong,” says Rose, a research professor with George Washington University’s Institute of Public Policy. “Lower and middle class workers have gained and are likely to continue to gain going forward from increases in productivity. Therefore, it would be a major mistake for U.S. economic policy to abandon growth in favor of an agenda principally focused on redistribution of a fixed ‘pie.’”
Rose analyzed data from the Congressional Budget Office (CBO) to show that real median income in fact grew substantially from 1979 through 2007 (from 30 to 49 percent depending on the definitions of income used), while real productivity growth grew at a higher rate than official government estimates. Further, during the same time period, the bottom 90 percent of Americans, by income, received between 54 and 59 percent of growth. This is significantly higher than the 9 percent often cited by Piketty.
“It is important to have an informed discussion about income inequality and its impact on American society,” Rose adds. ‘But blaming productivity gains only muddies the waters and risks the continuation and expansion of important pro-growth, pro-productivity policies that benefit the American economy and average Americans.”
Read the report.
