Bus Week: Workers gained more than capital in the 1990s

Max Sawicky sawicky at bellatlantic.net
Thu Apr 11 14:36:12 PDT 2002


Gee who needs Mickey Kaus when we've got Nathan.

I don't have time this week to deconstruct this, but here are the questions that need to be answered that bear on this topic, that the quoted sections do not answer:


> Business week has a whole analysis on why the 90s boom was so much better
> for working people than the 1980s, while the returns to capital
> were actual
> lower than during the 80s boom. And unlike the 80s, lower income
> and lower
> skilled workers actually gained in the 80s. Very interesting

mbs: One common-sense definition of 'better' is that labor's share increased. Did it? Returns to capital in terms of a rate glosses over the amount of capital; a lot of capital with a low return could mean an increase in capital's share, and little capital with a high return could mean a decrease.

We know lower income workers gained, which is nice, but a relevant question is how much, and compared to what?


> http://www.businessweek.com/magazine/content/02_13/b3776001.htm
> The biggest winners from the faster productivity growth of the 1990s were
> workers, not investors. In the end, workers reaped most of the gains from
> the added output generated by the New Economy productivity speedup. This
> revelation helps explain why consumer spending stayed so strong in the
> recession--and why businesses may struggle in the months ahead.
>
> The key is that wage growth accelerated dramatically for most American
> workers in the 1990s business cycle. Real wage gains for private-sector
> workers averaged 1.3% a year, from the beginning of the expansion

mbs: Robert Bartley (WSJ; "The Seven Fat Years") would be proud. You don't measure gains "from the beginning of the expansion" (i.e., the trough) to the end of recession. You measure peak to peak.


> in March,
> 1991, to the apparent end of the recession in December, 2001. That's far
> better than the 0.2% annual wage gain in the 1980s business cycle, from
> November, 1982, to March, 1991. The gains were also better
> distributed than
> in the previous decade. Falling unemployment put many more people to work

mbs: We can concede that the '80's were not all they were cracked up to be. As far as the working class is concerned, the average wage is less important than the median, or the top of the first quartile.


> and swelled salaries across the board: Everyone from top managers
> to factory
> workers to hairdressers benefited. Indeed, the past few years
> have been "the
> best period of wage growth at the bottom in the last 30 years," says
> Lawrence F. Katz, a labor economist at Harvard University.

mbs: right. no revelation there. We've reported it often.


>
> By contrast, the return on the stock market in the 1990s business
> cycle was actually lower than it was in the business cycle of the '80s.
Adjusted for
> inflation and including dividends, average annual returns on the S&P-500
> index from March, 1991, to the end of 2001 were 11.1%, compared with 12.8%
> in the previous business cycle. Bondholders and small savers saw their
> returns drop even more in the '90s. The real return on six-month
> certificates of deposit, for example, was only 3.1% over the past decade,
> compared with 4.7% in the '80s.

mbs: of greater interest is the change in inequality of income or wealth. or the change in shares in terms of capital v. labor. this doesn't tell you that.


> Overall, BusinessWeek calculates that workers received 99% of the
> gains from faster productivity growth in the 1990s at nonfinancial
corporations.
> Corporate profits did rise sharply, but much of that gain was fueled by
> lower interest rates rather than increased productivity.


> Why did workers fare so well in the 1990s? The education level of many
> Americans made an impressive leap in the '90s, putting them in a better
> position to qualify for the sorts of jobs that the New Economy
> created. Low unemployment rates drove up wages. And a torrent of foreign
money coming
> into the U.S. created new jobs and financed
> productivity-enhancing equipment
> investment...

mbs: see forthcoming book by Dean Baker and Jared Bernstein, on why education does *not* explain the wage gains.



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