The decline in the U.S. industrial base over the past couple of decades is the main factor eroding the share of American national income that goes to middle-class workers, according to consultants at McKinsey & Co.
For decades, labor’s share of gross domestic product has shrunk—while the share that goes to capital like profits, interest and rent, has risen. The McKinsey Global Institute, the firm’s research arm, finds that manufacturing accounts for more than two-thirds of the overall decline in labor’s share of gross domestic product since 1990. That, in turn, has harmed the prospects of the middle class and widened income inequality.
Wages are supposed to track worker productivity, and from the end of World War II until 1973 they did. Then, something happened: Productivity kept rising but wages did not. Many on the left argue the link is now broken and redistributing income from the wealthy downward would help workers more than faster economic growth. But a new study co-authored by Harvard University economist Lawrence Summers says that’s wrong. He and Anna Stansbury, a doctoral student at Harvard, found a strong and persistent link between hourly productivity and a variety of wage measures since 1973. The problem, they conclude, is that the positive influence of productivity on pay has been overwhelmed by other forces pushing the other way.
The Census Bureau reports that home ownership in the United States rose to 63.9 percent in the third quarter of 2017. This continues a rising trend since the second quarter of 2016, when home ownership had dropped to 62.9. This equaled the previous low of 51 years before (1965), just a year after annual data reporting began. Home ownership peaked at 69.2 percent during the housing bubble and had been generally declining since late 2006 (Figure).
The California dream isn’t dead. It just upped and moved to South Dakota. Less than half of people born in California in 1980 are making more money than their parents did as young adults. That’s the lowest percentage of children out-earning their parents that California has seen since at least 1940. By contrast, 62 percent of people born in South Dakota in 1980 out-earn their parents. That’s the highest percentage for any state in the country.
Compensation costs increased 0.7 percent for civilian workers, seasonally adjusted, from June 2017 to September 2017. Over the year, compensation rose 2.5 percent, wages and salaries rose 2.5 percent, and benefits rose 2.4 percent.