It is a bit crap to suggest that because we are paying people more so they can pay their doctors more, for worse outcomes than anyone in the rest of the developed world, they are somehow turning out better. In any case, the fact that real wages have remained essentially flat requires us to believe that workers are fine with not having made any gains in disposable income in exchange for better benefits, which seems unlikely.
Also, the fact that labor peaked in 1973, when the graph begins to diverge, should reinforce, not contradict, this argument.
Your chart implies some sort of breakdown between productivity and income but does not demonstrate that productivity gains have been equally distributed. In fact, there are a lot of reasons to think that most productivity gains are going towards the top end of the labor pool as well. Due to the lever of technology, we see increasingly small (in terms of # of employees) firms serve increasingly large markets.
My point (well Scott Sumner's really) is that there hasn't been a breakdown between pay and productivity. People are still getting paid more if they are more productive. It's just that somewhere around 1970 or so the median worker stopped getting all that much more productive.
Now, maybe that's what you meant by your graph. In which case, fine. But most people look at that and they think that the median worker started getting cheated out of their productivity gains. And that's probably not what's happening.
1. It's a side issue, but I'd also dispute your statement that people are getting less. Life expectancy has increased ~10 years in the US since 1970.
Arguing that workers are less productive because they earn less is a tautology; it also requires us to believe that workers magically stopped being more productive in 1973 after decades of improvement.
2) Other countries have significantly larger transfers from the rich to the poor. That certainly puts more spending power in the hands of the bottom half of the bell curve (which might be a good idea!), but it doesn't mean they're more productive.
3) I don't magically believe that increases in median worker productivity slowed in the 1970s, I believe it because it matches what I see in the world. GM used to employ 100s of thousands of people when it was one of the most valuable companies in America. Now Facebook holds that status with something like 15,000.
Technology has become this huge lever where fewer and fewer people are needed to make more and more stuff. So increasingly it's the people at the top end of the bell curve that are capturing these gains. A programmer can write software that gets used by more people than ever. A retail store employee is doing pretty much the same job now that they were doing 30 years ago.
> fewer and fewer people are needed to make more and more stuff.
You're arguing against yourself, here. The latter is productivity increase, the former is productivity decrease. Also, productivity growth is not new, it has been going on as long as the economy exists. Machine automation has been occurring since the industrial revolution started, it did not start in 1973.
What started in 1973 was that the high end (basically, the owners of capital) stopped sharing productivity gains - meaning that where previously, workers were able to bargain for a share of the increase, now they cannot, because of various mechanisms of taking. CEO pay did not go up 10X because CEOs were suddenly drinking tiger blood and winning the Fields medal.
My original contention was that one of these was the shift away from the Bretton Woods system, with fixed currency exchange rates based on the dollar; going from here to speculative international currency flows and floating exchange rates is one possible mechanism for making workers less able to bargain for those productivity increases.
NO! This is EXACTLY what I (really Scott Summers) am saying has not happened. The share of national income going to labor (vs the owners of capital) has remained almost exactly constant since 1973 (and before then as well).
This is not one of those “he said, she said” where reasonable people can disagree on whether the PCE or CPI is a better price index. This is a pay/productivity gap being invented by using the slowly moving price index (NDP, which is similar to the PCE) to make worker productivity look better, and the faster moving price index (CPI) to make real wages look lower. That’s not kosher. You need to use the same type of index for both lines on the graph.
If you simply don't believe in wage stagnation, then I'm not sure what this whole conversation has been about.
http://taxfoundation.org/sites/taxfoundation.org/files/docs/...
While that graph shows labor's share as stable, many others do not, e.g. in this piece by Jared Bernstein: http://economix.blogs.nytimes.com/2013/09/09/why-labors-shar...
Of particular interest to me is that if you look at the BEA numbers, they split 'labor share' into wages and non-wage compensation (benefits, SS, medicare, etc.) - the latter share has climbed over time to 20%, meaning much of the stability in the "wage share" is just increasing money being paid to Medicare.
It's not clear what's being measured and not in that chart, but, for example, this St. Louis Fed data shows both an increasing Dividend share of GDP and a declining wage share of GDP:
http://qvmgroup.com/invest/2012/09/05/profits-cash-flow-divi...
This is the main story. At a time, perhaps because of fixed exchange rates curbing the flow of speculative capital, perhaps not, productivity (viz., increasing automation) gains meant median wage growth - ordinary people participated in GDP growth.
Now this is no longer true, and we get pieces lamenting the death of blue collar jobs through automation. We'll blame robots, but perhaps we should be looking at the fundamentals of our economy - how we've set the free movement of capital above all else, to our detriment.