The North American productivity puzzle
The US has improved economically since 2012 – as captured by our Index data – but this progress has not resulted in an increase in optimism among citizens: North Americans today are less likely than ten years ago to believe that hard work will get them ahead in life. Middle-class wage stagnation has long been regarded as the central challenge facing America’s economy: while productivity is increasing, working Americans have received no subsequent gains in income. Instead of being a reward for greater output, the perception is that extra revenue is instead being channelled into the pockets of the wealthy: this has fuelled a widespread belief that capitalism in America is a broken model that rewards the elite rather than the hard-working many. A study from the Economic Policy Institute suggests that whereas increased productivity had a meaningful effect on wages in the mid-20th century, since 1970 productivity and wages have become relatively decoupled from one another.
Some American economists and commentators have challenged this view, arguing that the real issue is not a broken economy, but a lack of productivity growth. Data from the Census Bureau show that the median wage in the US actually rose by 5.2% in 2015, and then again by 3.2% in 2016. The nation’s poverty rate fell in both of those years. Productivity, however, has grown at a historically low level of 1.1% in the same time period – had it increased by mid-20th century rates, median incomes would be $40,000 higher than they are today. Whether productivity can ever be measured properly remains a puzzle; what is unquestionable, however, is that economic inequality persists and is growing in the US. The US will struggle to prosper more fully until it meets this challenge.