On Mankiw: The shrinking pie slice

Gregory Mankiw observed how many political standards this year are myths. I don’t agree with all of them, but one particularly jumped out at me. He noted that manufacturing output is up 47% over the last 20 years, but employment is down by 29%. His point is that increased productivity is good and needed to improve our standard of living, and I agree with his presumption.

That would be all fine and good if those gains had rolled through to workers to a significant degree. If all of the gains had gone to labor, wages and benefits should have gone up by 107% over twenty-years–more than double. However, looking at the Bureau of Labor Statistics Employment Cost Index (which includes benefits as well as wages), total wages and benefits rose only 71% over that period. The other 37% accrued to the owners of the manufacturing firms. It’s that shift in the balance of benefits from productivity that is driving political discontent, as I wrote about earlier. Labor’s share of the growing pie is shrinking.

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