What the Wage Warriors Won’t Tell You

You’ve seen this graph before.  It shows how earnings have failed to keep up with productivity, and it is one of the most commonly shared graphs on the Internet today.  There are a number of problems with it.  The first problem is that it looks at household incomes rather than individual incomes, and households have changed a great deal over time.  Real economists prefer to look at individual incomes, as what makes up an ‘individual’ does not change.  The other problem with this graph is that it does not provide a cause for the gap between wages and productivity.  Those who show it assume that corporate greed is the cause, but they never provide any evidence to back that claim up.  Liberals simply say, ‘wages have not kept up with productivity, so we need to have more government mandates.”

Even though this graph ignores the facts that we have more single parent households than we did in the past; that we have fewer households where elderly parents living with adult children than we did in the past; that people get married later in life than they did in the past; that children tend to, on average, move out at a younger age than they did in the past; and various other things; there is still some truth to the statement that wages have not kept up with productivity.  But let me show you another graph.

This second graph (right) compares productivity to the total cost of employing people, and as you can see, the total cost of employing people has kept up with productivity gains remarkably well, other than during the 2008 recession (and that gap has since begun to close).

These graphs, looked at together, bring up a couple of important questions:  1) How is it possible for household incomes to flat line while the cost of employing people continues to rise?  And 2) Given that the first graph shows that wages, on average, should be twice what they are today, what can explain such a radical difference between the two graphs?  It turns out that there are a number of factors.

One factor is the cost of healthcare insurance, which began to explode as soon as government got involved in the healthcare market.  On top of that, there are a whole myriad of other employer mandates our government has put in place over the past forty years, including ergonomic laws, retraining requirements, laws mandating paid time off for various reasons, laws protecting people with disabilities in the workforce, etc., etc., etc..  Whether or not these mandates are a good idea is something worthy of discussion, and we could debate each mandate in detail, but what is not debatable is that they all add to the non-wage cost of employing people.

Wages, today, make up the lowest proportion of the cost of employing people that they ever have, and this proportion keeps dropping every year, with each new mandate.

Democrats, of course, have a solution.  What we need, they tell us, are even more employer mandates.  Rather than having forty hours considered ‘full time,’ Obamacare reduced it to thirty five, and Democrats want it reduced again to thirty.  Democrats want to mandate twelve weeks of paid maternity leave and mandatory European-style vacation benefits.  Democrats want to mandate more sick days and longer lunch breaks.  Democrats want to make it harder to lay people off.  Democrat employer demands are endless, and every time they push a mandate through, they come up with yet another mandate.

All of these ‘stick it to the employer’ demands will have the same effect on wages that all of the other ‘stick it to the employer’ demands have had in the past – wages will continue to become an ever smaller percentage of the total cost of employing people.  In essence, Democrats have spent every penny of productivity gain the American people have seen since Jimmy Carter took office, and they spent it before the employee ever even got to see it.  If we believe the top graph in this article (the one Democrats keep showing us), half of your pay goes to government mandates, and to add insult to injury, after preventing your employer from paying you what should be your salary, Democrats have an endless number of reasons to also raise the taxes on what you do take home.

If someone wants more vacation time, there is nothing stopping them from negotiating for it.  Tell your employer that you would like to trade five grand a year for another week of vacation.  Yoru employer may well say yes.  Tell your employer that you want to pro-rate a twelve week reduction in pay across the whole year, and then take twelve weeks off when you have a child.  Your employer might allow that too.  But when government mandates these things, you force everyone else to pay for it too, and I can make that decision for myself.