How to survive in a tech-driven economy
Technological innovation has made the US economy more productive, but this new economy creates fewer jobs, and wages are suffering. Preparing workers for an era when productivity and employment are no longer linked will be the grand challenge of the next generation.
J Pat Carter/AP/file
A wonderful ride has come to an end. For several decades after World War II, the economic statistics we care most about all rose together as if they were tightly coupled. The US gross domestic product – the economy – grew and so did productivity – our ability to get more output from each worker. At the same time, we created millions of jobs, and many of these were the kinds of jobs that allowed the average American worker, who didn’t (and still doesn’t) have a college degree, to enjoy a high and rising standard of living. Productivity growth slowed down in the 1970s – a development that had us rightly worried – but revved up again in the 1990s and has stayed strong most years since.
But productivity growth and employment growth started to become decoupled from each other at the end of that decade. Economist Jared Bernstein calls the gap that’s opened up the “jaws of the snake,” and they show no signs of closing. We’re creating jobs these days, but not enough of them. The employment-to-population ratio, or percentage of working-age people that have work, dropped more than five points during the Great Recession and has improved only half a point in the almost three and a half years since it ended.
As the jaws of the snake opened, wages suffered even more than job growth did. Adjusted for inflation, the average American household now has lower income than it did in 1997. Wages as a share of GDP are now at an all-time low, even as corporate profits are now at an all-time high. The implicit bargain that gave workers a steady share of the productivity gains has unraveled.
What’s going on? Why have the stats that workers care about – job volumes and wages – become decoupled from the rest of the train of economic progress? There are several explanations for this, including tax and policy changes and the effects of globalization and offshoring. We agree that these matter, but we want to stress another driver of the “Great Decoupling”: the changing nature of technological progress.