Key Points

• Despite numerous claims to the contrary, the pay of American workers has tracked productivity trends—for at least 95 years.
• The pay of the median worker, however, after rising with economy-wide productivity, has risen much more slowly since the early 1970s.
• This divergence reflects rising inequality in worker productivity and a deceleration in male pay—the latter caused by a shift to a service economy and the dissipation of “breadwinner rents” that went to sole male breadwinners in an era when women’s economic opportunities were constrained.
• Policymakers should seek to accelerate productivity growth, which will help working- and middle-class Americans

Executive Summary

Doomers on the political left and right agree that economic growth has failed to translate into higher wages for American workers, with some claiming that pay has barely risen in 50 years. Such sentiments have been buttressed by flawed analyses that, comparing apples to oranges in a variety of ways, have found that the pay received by workers has not kept pace with productivity gains.

This report discusses the problems with those analyses before showing—in six different ways—that worker pay has kept up with productivity growth. Whether the starting point is 1973, 1948, or 1929, aggregate pay is exactly where productivity growth would predict.

However, after keeping pace with productivity growth for 25 years, the pay of the median worker has lagged gains in productivity since the early 1970s. In part, this relative stagnation likely reflects a fanning out of worker productivity. Productivity appears to have grown unequally across industries, firms within industries, and workers within firms. As a result, growth in the productivity of the median worker has slowed, causing growth in the pay of the median worker to slow.

The slowdown in median pay also reflects the particularly slow growth in pay among men. For all but the highest-paid men, compensation has grown more slowly than it has for the lowest-paid women. Decelerated pay growth for men reflects the transition from a period in which men occupied a privileged place in the economy. First, being dominant in the high-productivity goods-producing sector through the mid-20th century, men saw their pay decelerate over time as employment shifted toward lower-productivity service-sector jobs. Women were already disproportionately working service jobs and so were less affected, and falling barriers to high-paying jobs left women better off, even as men faced stiffer competition.

Second, men benefited earlier in the century from median pay growth that exceeded productivity growth and remained elevated for decades. Fifty years ago, median pay was higher than what productivity growth would have dictated. Many working- and middle-class men received “breadwinner rents”—pay in excess of their marginal value to their employer—because of the widespread ideal that a husband should be able to support a family on one income, while mothers should not work. As women’s workforce participation increased in the 1970s and 1980s, this norm eroded, and men endured a period of slow wage growth until productivity levels had risen enough to justify stronger growth in pay.

Third, as the traditional male breadwinner role weakened, marriage declined. Along with reduced fertility and greater economic opportunities for women, the decline in marriage led men to prioritize values other than maximizing their pay.

The painful transition for men is largely behind us, and the median male worker has seen significant pay growth over the past 30 years. Policymakers should prioritize raising productivity growth and helping the children of working- and middle-class Americans obtain the skills and knowledge they need to exploit fully the economy’s strength. And we should devote more attention to the special problems facing men in the modern economy.

Introduction

“Bernie Sanders is right about capitalism.” That’s the headline from a recent op-ed by CNN Senior Political Analyst Kirsten Powers. “Late-stage capitalism” is “untethered to morality or decency,” and “it’s not working, except for the super-rich.”¹

Such declensionist views are not unique to Sanders and the political left. A policy handbook published by the national conservative outfit American Compass, titled Rebuilding American Capitalism, flatly states that the “breakdown in American capitalism over the past half-century is most apparent in its failure to deliver widespread prosperity for the American people.” The group claims that the wages of American workers have risen by only 1 percent in 50 years.²

These examples don’t simply reflect the pan-ideological rise of economic populism; the public discourse they exemplify has fueled it. The result is a concerning loss of faith in the American economy’s ability to serve our needs. Among young adults, only 24 percent have a positive impression of capitalism and a negative impression of socialism. In contrast, 28 percent think positively of socialism but not of capitalism. And 27 percent have a negative impression of both.³

Are these views justified? This report addresses a central question bearing on the performance of American capitalism in recent decades: How much has worker pay increased, and how should we think about the health of the economy in light of the evidence? Does economic growth continue to benefit American workers?

Read the full report.

Notes

1. Kirsten Powers, “Bernie Sanders Is Right About Capitalism,” CNN, February 24, 2023, https://www.cnn.com/2023/02/24/opinions/bernie-sanders-capitalism-freedom-powers/index.html.
2. American Compass, Rebuilding American Capitalism: A Handbook for Conservative Policymakers, 2023, 9, https://americancompass.org/rebuilding-american-capitalism.
3. Results are for adults age 18 to 29. Pew Research Center, “Modest Declines in Positive Views of ‘Socialism’ and ‘Capitalism’ in the U.S.,” September 19, 2022, https://www.pewresearch.org/politics/2022/09/19/modest-declines-in-positive-views-of-socialism-and-capitalism-in-u-s.