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Instead of ‘Late Capitalism,’ Maybe the US Economy Is Still in ‘Early Capitalism’


June 15, 2023

So how is the twilight of capitalism working out for you? What, you didn’t realize that you were living through “late capitalism”? Before I go on, let me first explain that term. The phrase dates back to the early 20th century — yup, we’ve apparently been in LC for a long time — when Werner Sombart, a German economist, used it to describe the stage of capitalism that followed the Industrial Revolution. He saw it as a system marked by the rise of big business, the concentration of wealth, and the exploitation of workers. The LC framing gained traction, at least among Marxist theorists, after World War I with believers pointing to increasing inequality, environmental degradation, and social unrest as evidence of capitalism’s imminent collapse and demise. The Global Financial Crisis and rise of Big Tech as such a dominant player in the American economy seem to have given the notion new life over the past decade, especially in the years leading up to the COVID-19 pandemic.

Yet I could easily cite some economic statistics that undermine the notion of LC, at least as it applies to the American economy. This is a big one: According to calculations by AEI economist Michael Strain, real median wages grew by 34 percent from 1990 through 2022, with real wages at the 10th, 20th, and 30th percentiles growing by 50, 48, and 38 percent, respectively. As Strain writes:

My characterization of wage growth over this period would be “solid, but not spectacular.” Of course, policy should not be content with this pace of growth. It is not “fast enough.” Policymakers should focus on policies to boost productivity, which will quicken the pace of wage growth, along with measures to increase competition in the labor market.

And this next stat, which relates to Strain’s analysis of wages, might be even more important to the debate given how much of it revolves around the issue of income inequality: “US earnings inequality has not increased in the last decade. This marks the first sustained reversal of rising earnings inequality since 1980.” The observations come from the analysis “Rapid wage growth at the bottom has offset rising US inequality” by Clem Aeppli (Harvard) and Nathan Wilmers (MIT) appearing last October in the Proceedings of the National Academy of Sciences, a peer reviewed journal of the National Academy of Sciences. As Aeppli and Wilmers explain in that article:

[O]verall US earnings inequality has plateaued in the last decade. This is due to particularly fast earnings growth among low-wage workers rather than median-wage workers catching up with those at the top. . . . [F]ollowing recovery from the Great Recession, low-wage workers have experienced rapid earnings growth. Further tightening in the labor market following COVID-19 has dramatized the perception of emboldened low-wage workers. This earnings growth is not mainly driven by worker composition change, workplace-specific changes, or rising subnational minimum wages. Instead, it is associated with broadly increased premiums in the lowest-paid occupations: occupations that had faced particularly slow wage growth from 2002 to 2012. . . . At the local labor market level, pay increases for low-wage workers were associated with tightening labor markets. These dynamics delivered a period in which earnings growth has been higher for workers at the bottom than at the middle or the top.

I would also add that there’s other research suggesting that the economic tumult of the pandemic itself is playing a role here by nudging low-paid workers to seek new, higher-wage jobs. As the Wall Street Journal explained last March, using data from a different paper: 

Part of what might have driven the wage gains is that the onset of the pandemic unstuck many less-educated workers from jobs that paid worse than they might have gotten elsewhere. The job losses among workers age 25 and older with a high-school education or less were extreme, with employment levels falling more than one-fifth from February 2020 to April 2020. But when the job market came roaring back, many of these workers didn’t simply go back to their old jobs, but to ones with higher pay. Helping this process, several rounds of relief payments from the government might have given them the wherewithal to shop for a better job, rather than snapping at the first offer they received. And seeing other people secure better-paying jobs might have led other workers to go on the hunt.

Now none of this fits into the popular LC narrative. But especially with some emerging technologies, such as AI-machine learning, showing great progress for boosting productivity growth, maybe we should be talking about Early Capitalism? The best may be yet to come!