Does present a real opportunity, even in a body like the senate. There are advantages to setting and what we call the right of first recognition. With sunday, indepth steve forbes. He will join us to talk about his life and career and his. Atest book titles include, how capitalism will save us. Join in on the conversation. 11 15, lesliet stahl discusses the science grandparenting. She interviewed colleagues, friends, doctors, and scientists about women as they transition impaired. E of go to cspan. Org for the complete schedule. Now, a look at the connection between worker productivity and wages. This was hosted by the heritage foundation. It is one hour. Good afternoon. We will of course post todays presentation on the website. The discussion today is herk. S his commentary and analysis has appeared in nature publications. On suchso an expert news. Ks like cnn, and fox him. E join me in welcoming [applause] thank you. I will speak from here. Scottd like to introduce manhattanom the institute. I am a former canadian citizen, and im obligated to invite someone from france. One of the major issues that we face in the u. S. Is how do we praise wages today. This has been at the forefront since the recession which has been so brutal for so many families. Typical familys income has not recovered yet from the recession. It is on the mind of many policymakers and on the news, is, the obvious answer people saying they do not do it anymore. If you ask any economist how do you raise a wage whether you school ando economic want ar phd if you worker to get paid more, make them more productive. Whatever it is, generally speaking, economics argues and labor economics in particular argues that workers get paid based on their marginal productivity. If youre more productive, you will get paid more. While this is a broadbased consensus, some argue that this is not the case. We have seen a lot of charts ant look like this from Organization Called the Economic Policy institute. They are obviously coming at this from a leftwing perspective. This does not mean they are wrong. Certainly, we dont believe that someone just because of their ideological position, you should ignore their arguments. We obviously take a conservative position. The fact you pr is coming up it is worthcharts taking a look at. What this chart shows is productivity and compensation broadly speaking grew together until the 1970s. From then onwards, there was a huge increase in productivity, productivity increasing about 70 . Paid does not do the same thing. 9 . Nly grew about this is something that, to me, as an economist, looks very weird. President obama has argued that this is the story of america for the past 40 years and has explicitly made policies to basically forced companies to increase productivity. Companies are making more than other, and companies are holding back on productivity, hoarding it for themselves. The new overtime regulations you may have heard of these. We will require any salary worker to log their hours and track their time because they now qualify for overtime. The labor,tration, we are doing this because companies are not paying workers anymore for productivity. Over and over again, we are hearing the argument that workers are more productive, and companies are therefore cheating the, not paying them for productivity. I found that very interesting and looked at the numbers myself. I thought numbers that were different. Park city has grown by 81 since 1973 when the andalled divergent began compensation has risen by 78 . Gap whatsoever. If that is the case, the proposals make no sense. It is one thing to push for a wage, but if it were for not being paid for productivity, and telling them, hour he will not get paid 15 per hour, he. Ill be fired differentcome to conclusions. It is not just me. Most economists look at these they say, look, you cannot come to the conclusion that productivity and wages have diverged. Under lawrence was president clinton. Many other economists look at the numbers and come to conclusions server similar to what i do. Is making an apples to oranges comparison. If you make an apples to apples comparison, productivity and pay has grown together. Epifirst thing going on is is comparing different groups of workers. Their measure of pay is based on the bureau of labor statistics for production and nonsupervisory workers. That covers about 80 of private sector workforce. I say in. Because the bureau of labor statistics has looked at this and determined that companies do not appear to be reporting wages position. Hourlyem to be reporting wages, the people who dont qualify for overtime. They get asked that. That is not the entire private sector. Use of the control pay and productivity for two different groups of workers. That will give different results. Paye is no reason to expect and productivity of two different workers to grow at the same rate. There is another thing going on. The chart only looks at the pay of workers who are not selfemployed. Group. Udes activity this would include people who ,tart off their own business including someone who drives for uber. If you write your house on airbnb, you are technically selfemployed. That Income Growth is feeding into the economy, but is not being measured on the payroll survey. Everyone who is selfemployed for their pay include their earnings. Some bias. Oducing it is not an apples to apples comparison. We cannot your activity if you are selfemployed, but weidner we ignore your pay. The third thing, theyre using payerent measures to adjust and productivity for inflation. The government has made when inflation. Measure what they are using is the fastest measure of inflation to measure pay to make it look like inflation adjusted wages are part of the survey. They just productivity for measureinflation. Invasive look like inflation adjusted productivity is growing faster. This alone, apart from any change, will make the rate grow differently. Even in terms of the actual paycheck that the workers get, they are moving in relation to pay. They are not caused by real characteristics in the data. This chart simply shows what happens when you account for the different factors. What you can see here is that the top bar is showing the gap cost, the difference between excluded or included. The bottom shows looking at all workers versus a subset of workers. The middle to bars show the different effects of using different measures of inflation. Im happy to go into more detail in the q a. These factors account for productivity and Income Growth. If you measured on an apples to andes basis, productivity wage increases are going at the same rate. About 45 comes from your looking at the varsity of all alloyees, not at the pay of employees. Another 12. 5 comes from the selfemployed, who are not technically employees. Again, we are looking at the productivity, not the pay. It is a grand total of 4 left over at the end of day. If pay and productivity are growing together and theres only a 4 difference, i dont believe we should be drawing conclusions that companies are holding back workers. We should be looking for ways to help workers become more productive. In every state in the country, you need a government license to be a barber. For me, the difference between a good haircut and a bad haircut is about three weeks. You need on average more than one year of training to be a barber. The reason we have the licensing up Competition Among workers. Could workople who as a barber, but are barred by law from doing so. It is not so much distribution, but how do we help workers become more productive. Those are the things we ought to be looking forw to help workers get ahead. If you are somewhat skeptical of my claims, there is another way of looking at this. That is what share of National Income to workers collect . The argument was made in the 1990s that we should basically see a share of National Income collapsing. Again sing this argument come back. Measure of data that the share of total income going to workers is falling. That, this is something they say, this shows workers are being mistreated. Again, this is a case where you need to make an apples to apples comparison and understand the data you are looking at. They show the labor share of gross income income before depreciation. If you are a company, you need capital to produce goods and services. You need to buy computers for your employees to write reports, and so on. Appreciation has gone up as we use more and more computers. I would not be the person using a computer built in 2001. Companies need to use more more income to account for appreciation. What really matters is that income, what companies are left with after appreciation. That is not what they report. If you work for yourself, what part of that is capital income and what part is labor income . It is very ambiguous. The bureau of labor statistics changed how they did that in 2001. Aboutusly they attributed a quarter of income, now is half. It makes it look like starting in 2001, there is a huge drop in worker share of income. It comes from the fact that we are treating selfemployed income differently. If we account for these factors, this huge gap, or huge drop, in income goes away. Went up in the tech bubble. This graph shows that. There is no real drop in the share of income. Im running out of time so i will briefly the same side, i can get to and q a. I will close witone thing. The fact that average pay an average productivity Grow Together does not mean that every worker is experiencing the same growth and productivity. This shows average productivity. As you can see, for the top quantel, sharp growth. For theealthy growth bottom half. For the middle fifth, we are only looking at about 20 growth. Is how do weenge increase productivity for all workers. It is not that there is a gap it growst productivity different for some. The challenge is how do we address the gap in productivity. With that, i will turn it over to scott. Thank you. First, i want to say my mother is frenchcanadian. I feel like i deserve to be on the panel more than anyone. The second thing it would to say an incredibles is report that james had written. I have always been an admirer of his research. Ive always expire to write something where someone who is new to the topic can come to it. If they read the whole thing carefully, they essentially are brought up to speed in a way that a good fraction of the experts out there are not up to speed on. I will also say that i completely agree with james that important. Redibly it tends to make peoples eyes glaze over when you talk about technical issues. When you are willing to trust james, and dont worry about the technical issues, he is right on them, it turns out. The bottom line is that worker pay has tracked worker productivity over time. Those are crucial conclusions. It is not conventional wisdom. There are a few issues that drive me nuts because the facts are clear, but conventional wisdom has not caught up. Be510 years, this will not controversial at all. It should not be controversial. You have groups like epi that continue to produce results that are ultimately misleading. Recently, there has been this. Lossoming of research there is james paper, and i think he has done some work for this. 2014 asmething in the well. There was something written for Economic Activity last year. And, there was an economist who aste something in late 2014 well. Really, there is a trend in people finding this same result. Then, i want to use the rest of the time to talk about a few extensions to jamess Resource Research that i have been working on. Some of us have been benefiting from communicating with james along the way and realizing i did not know the data as well as he did. Since 1948, worker pay has kept up with worker productivity. You cannot take hourly pay back much before 1948, but you can look at annual compensation and look at net gdp rather than net productivity. Because both of those are divided by the same hours to get Hourly Compensation, comparing gdpl compensation to total basically tells you the same. Hing we can look at productivity going all the way back. Point or 1929g rather than 1948, they still line up. Both 21 they were points higher than the 1929 to 1934 average. It is remarkable how well they line up, especially given that the data is not perfect. I do think it is an important policy question, what has hourlyd to the median compensation. If groups were smart, in my view, they would concede jamess pay ant tracking overall activity. Charthey do is present a that shows the median pay has not kept up with overall productivity. It is an important point, but also misunderstood quite a bit. Let me go into a little more detail. Typically you will see see withi analysis, Something Like for 1973 to the ending date of 2011, the median our Hourly Compensation rose by 37 . The median productivity productivity in the overall economy increased by 84 . These are using the same inflation adjustment compensation and for productivity, as james told you was really important. Everything im giving you from here on out uses the same inflation adjustment. Median pay has not kept up with overall productivity. The first thing to note is we workernow if the median productivity has kept up with the median worker pay. It could be that productivity growth has been unevenly distributed, its been higher for higher earning workers. There not really any evidence of that. I think we have the data that will let us answer that question. Theory, its not exact right to look at the median worker and compare whether their pay has kept up with overall economy wide productivity. We cant track Hourly Compensation much further back 1973, but we can do is theres a paper by emmanuel psy as, and where they look at the ofual median earnings commerce and industry workers between the ages of 25 years old and 60 years old. To 2004, the trend shows the same thing that shows you. Ian annual Earnings Growth negra activity net productivity grows. Its important to think about the starting point. In 1973, the assumption with all of these analyses is that worker pay is essentially where worker productivity would have predicted. If it was, you would expect that to the two to grow at the same rate. If it is the case that worker pay in 1973 was higher than productivity levels actually justified. Its not hard to think about a scenario in which that would be the case. We had a big era of unionization in the mid20th century, until recent decades, essentially we a breadwinnern premium essentially, because without the worst thing in the world was for married women to work. We were overpaying a lot of guys to try and raise a family on one income. Workers the case that pay in 1973 was higher than their productivity levels would have justified, well, this is missing the boat, so what i have done it turns out in the 1940s, median pay growth exceeded productivity growth. You think of this between the wagner act that made work a lot unionization a lot easier, and the hartley act that made it more difficult. So in 1973, median annual earnings had grown by 176 since 1940, whereas productivity had only grown by 145 . As of 1973, if you pick 1940 as the base year, worker pay was above the level of productivity would have predicted, so what would you expect to see . You might expect to see a correction of the time i think that is what has happened. What you see after 1980 is a big gender difference. Among women, median Hourly Compensation tracks overall net productivity very well until about 2000. Among men, over the 1980s and the first part of the 1990s, their pay stagnates and declines. After that, it follows the same path as womens median compensation, that it is much lower now, so most of the decoupling to the extent that it has been any has been around man and there is a reason to think that this is in some way the big historical correction for an era that none of us really want to go back, and some of us might, that few women would want to go back to where there was this wedge between worker productivity levels and the pay that they received. I think that is another important difference of secured that is of secured of obscured by these analyses showing median pay not keeping up with productivity. I will stop for q and a. Thanks. I went to echo what scott said about the importance of james paper. I also want to echo what he said about the ability of james to communicate to people who may be do not quite understand what james is talking about as an outsider and make it crystal clear. I go through the research all the time and ago in bug him when ill write something about his work and i want to make sure im not saying something that is not correct, and he is always very gracious and scott is the same way. The incredible values of these two guys is that they are debunking a lot of things that are conventional wisdom, and they helped this conventional wisdom move toward the truth. This is particularly important. I am no labor economist, but i will tell you why i have been following their work quite closely. Not always understanding it fully, but quite closely. I do not play the french card often, but i am going to now. I am extremely concerned by the development in the labor market in the united states, and im really concerned that there are a lot of forces trying to push the American Labor market into becoming more like the french labor market. Why is that a bad thing, right . You always hear about french protection, nice lifestyle, not being forced to shower, all of that stuff. [laughter] the reason is that i think there is quite the consensus, even among socialists. Yes, we have a socialist party in france, but the labor market in france is one of the main causes of the problems in the economy in france, it is not the only one, but it is one. How bad is it . In the last 25 years, the average among women and men, 9. 6 compared to the u. S. At roughly 5. 4 . The other thing is when you look at the unemployment in france, it is longterm. Unemployment right now for people younger than 24 is about 25 and it has been for a long time unemployment among women that is also fairly high, so i just really quite fear the consequences for the u. S. If we introduce so many of these. The way they are introduced is by pushing arguments, such as the one that came in the paper and the research and the scott has been debunking, and eventually, they will be the actual fact where you put in place the right policy. With that in mind, i could tell you what my feeling from the outside is kind of about what is wrong about the argument. They presented the technical case about what is wrong with the numbers, but what hollywood strikes me as problematic in the argument as made. I will tell you what strikes me as problematic in the argument as made. First, i think there is an inco