United States GPN Report 2007
Sylvia A. Allegretto

Introduction:

The current expansion of the U.S. economy is well into its sixth year—a relatively mature stage compared to recent cycles. The last recession in the U.S. was in 2001 and officially lasted eight months from March to November. As of this writing, Spring 2007, many of the underlying fundamentals of the economy look good. This recovery has seen some stellar productivity numbers, output has expanded at a decent clip, and unemployment has been relatively low. However, how individuals fare in the economy is greatly determined by where they are situated within it. This report focuses on the labor market and the workers that drive the U.S. economy. Workers across the economic spectrum are analyzed in a historical context, as well as, within the current economic cycle.

This introduction briefly addresses two troubling issues that emerge from this report. The first concerns the persistent and increasing gap between productivity and wages. Second, the long term trend of increased inequality in the United States has continued to worsen in terms of wages, family income, and overall wealth.

There has been a long standing mantra amongst economists that faster productivity growth leads to higher living standards. Figure A shows that this concept generally held true from the late 1940s into the late 1970s. However, since then there has been a breakdown in this relationship. Increased productivity and growth give rise to the potential for widely shared prosperity, but a number of other factors have to be in place for it to be realized. These include strong labor market institutions such as unions, collective bargaining, and a sensible minimum wage. As the figure shows, during the present cycle, the gap has grown substantially—as productivity growth soared while median family income stayed flat. The post-1995 shift in productivity growth, partly attributed to the diffusion and more efficient use of information technology, has sometimes been referred to as the “new economy.” Reconnecting rising productivity of American workers to subsequent increases in living standards is a complex and perplexing problem. At present the additional wealth created in this expanding economy has flowed to those at the top of the economic spectrum at the cost of those in the middle and the bottom.

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