Jan Rivkin: From the end of WWII until the 1970s, productivity in the U.S. and median wages grew in lockstep. But from the late 1970s until today, we've seen a divergence, with productivity growing faster than wages. The divergence indicates that companies and the people who own and run them are doing much better than the people who work at the companies.
If the U.S. economy was healthy and competitive, we'd see firms able to do two things: win in the global marketplace and lift the living standards of the average American. Large businesses and the people who run them, and invest in them, are thriving. But working- and middle-class Americans are struggling—as are many small businesses.
White: Some say that the decrease of collective bargaining has played a role in creating the gap. How true do you think that is?
Rivkin: There are a number of causes. One is the underlying shift in technology and globalization. Another is systematic underinvestment in the commons, which is a set of shared resources that every business needs in order to be productive: an educated populace, pools of skilled labor, a vibrant network of suppliers, strong infrastructure, basic R&D, and so on. A third is shifts in institutions and politics and bargaining power, which is embodied in the decline in collective bargaining and the weakening of labor unions. There's no question that that is part of the story. How large a part? I don't think anyone has a well-informed perspective.
White: OK, let's talk more about some of the principal reasons this gap developed and then started to widen.
Rivkin: Starting in the 1980s changes in geopolitics and technology opened the world for business. It became possible to do business from anywhere and to automate an increasing array of activities. Globalization and technological change brought great benefits to the U.S. economy, but it had a few other consequences.
White: For instance?
Rivkin: It weakened the connections between companies and their communities. Those connections had led companies to invest in the commons, so corporate investment in the commons starts to decline around that period. Second, it put intense pressure on the middle class, which found itself competing for jobs with hundreds of millions of skilled, ambitious workers around the world—so this is the point at which we see the divergence between productivity growth and median-wage growth.
A third consequence occurred at the other end of the skills spectrum. For those who had unique skills, this became a golden age, because now those individuals were able to sell their talents around the world, amplified by technology. So this is when we see inequality begin to soar.
White: This gap, like lots of other forms of inequality, seems to bear down on the middle class—why do you think that is?