The Post-Industrial Economy has Changed Everything

That’s the implication of an analysis by UNC economist Karl Smith.  (This is kind of a follow up to yesterday’s post.)  The accompanying chart from the Economic Report of the President (click on it for a larger version) shows how wages moved with prices in the postwar era.  To simplify it a bit, for about 50 years, whenever prices changed, wages more or less changed with them.  That fueled the postwar prosperity.

But it looks like sometime in the last 20 years, that link was undone.  Productivity continued to increase, but wages remained flat.  Thinking of it one way, hard work no longer paid off.  As Smith puts it, “we are returning to an environment where productivity gains do not accrue to unskilled labor because they are imbedded in the brains of the innovators.”

A factory is really big and hard to keep secret. Computer code less so. When you simply write down the process you want or draw the object you want and the computer translates it for you the seep down [that raises the wages of production workers] will grind to complete halt.

At its heart the issue is that Industrialization Really Was Different, and there is no reason to think it will come again.

The reality of this new world is that you cannot simply work hard and make a good living. Nor, should you expect that if you save for your future you can support yourself.

To state the obvious, the implications of this for economic development and social policy are huge.

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