What's going on here? The simplest explanation is that the U.S. economy seems to be getting really, really great at making more stuff with fewer workers and/or lower wages. But every picture tells a thousand words, and that sentence is barely 20. So here are two more observations:
1) Where Are the Productivity Gains Going? One way to inquire into this productivity "gap" -- the difference between the blue and red lines that opens like a V around 1980 -- is to ask where the gains from productivity went if they didn't go to higher wages. Did they go to cheaper products? Did they go overseas? Are robots and software doing middle-skill jobs more effectively, thereby raising overall productivity, while those same workers are being forced to take lower-wage service jobs that result is a slower moving red line? Or, as economist Michael Mandel has argued, maybe we're measuring productivity incorrectly. In other words, output isn't rising as fast as we think, and that thin blue line is a big fat lie!
2) Where Will the Next Productivity Wave Be? The 1990s were an explosion of productivity and rising real wages, especially in technology industries. In general, productivity rises in industries where wages rise. But in the next decade, the opposite is projected to occur: The area with the largest projected growth in jobs, health care, has one of the lowest productivity growth rates. That's not a recipe for a well-functioning economy -- hundreds of thousands of minds destined for an industry where we know they will be used unproductively.
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