No, that's not why people don't think the economy is doing well

In a previous post I plotted productivity against real compensation, showing that real compensation has lagged behind for years. A paper by Dew-Becker and Gordon (Brookings Papers on Economic Activity 2005) argues that the seeming shortfall in real compensation occurs only because the BLS uses different deflators for the two series. Below is a graph similar to one in their paper showing that labor's share of national income has held steady at about 65% since about 1970 if you exclude proprietors' income; if you add in proprietors' income, it has held steady at between 70 and 75 percent since 1929. If labor's share (WL/Y where W is real compensation per hour, L is hours worked, Y is real national income) is constant, then it is also true that W/(Y/L) is constant, meaning compensation is rising as fast as productivity.













So why is the citizenry so ornery? Dew-Becker and Gordon look at the distribution of earnings within labor's share and find that

- While productivity has grown by 1.57% annually from 1966-2001, only the top 10% of the income distribution saw its wages rise by that much. Real wages and salaries (they don't have data on benefits) rose by 0.95% for the worker at the 20th percentile of the distribution, 0.76% at the 50th percentile, 1.40% at the 80th, 1.77% at the 90th, 2.06% at the 95th, 2.72% at the 99th, and 3.92% at the 99.9th.

- From 1966-2001, national income grew by $2.8 trillion (adjusting for inflation). Of that, about $334 billion went to the bottom half of the income distribution, compared to $456 billion going to the top 1 percent of the distribution. The top 1/100th of a percent of the distribution (that is, about 30,000 people) got a whopping $72.1 billion of the growth, almost twice as much as the bottom 20% (60,000,000 people).

That's why people don't think the economy is doing well.