How U.S. labor productivity has changed since 1950
Labor productivity—or the average hourly output of all workers in a country—plays a big role in improving the standard of living. Simply put, boosting productivity should enable people to get the things they want and need more quickly, allowing them to spend their time and energy focusing on goals that go beyond survival.
Three factors contribute to improvements in labor productivity: technological advancements, physical capital, and human capital. Each of these components has helped the U.S. raise its labor productivity by 299% from 1950 to 2018. But despite the increased efficiencies of workers, the adjusted median household income only went up 152% in that 68-year period—contributing to a stark wealth divide between the rich and poor. Over the last few decades, the share of aggregate income held by people in middle- and low-income tiers has shrunk, while upper-income households have seen their wealth grow rapidly. Rather than benefiting workers as much as executives, the majority of the benefits of improved productivity have gone straight to the top—leaving much of the workforce behind.
So why haven’t wages kept up with rising productivity, and how has that contributed to the wealth divide? To find out, Stacker sourced 2019 data on labor productivity released from the St. Louis Federal Reserve on March 5, 2020. The labor productivity index represents the average annual real output per hour of all persons in the nonfarm business sector. Median household income is sourced from U.S. Census historical income tables and adjusted to 2019 dollars, using consumer price index data sourced from the Minneapolis Federal Reserve.
Certain patterns of labor productivity and its influence on the median household income emerge if you look at data from the last seven decades. Read on to see how labor productivity has changed in the U.S. since 1950, and what it means for your paycheck.
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- Labor productivity index: 26.52 (+6.6% change from previous year)
- Median household income: $31,830 (+9.7%)
The post-World War II period brought massive growth to the U.S. It primarily benefited the middle class and low-income families, with the poorest 20% of households seeing the biggest gains.
- Labor productivity index: 27.21 (+2.6% change from previous year)
- Median household income: $36,388 (+14.3%)
In the mid-20th century, the nation was undergoing a major shift in the composition of its workforce. It would transition from being composed of primary production occupations (like foresters and farmers) to “professional, technical, and service workers,” according to an article from the U.S. Bureau of Labor Statistics.
- Labor productivity index: 27.73 (+1.9% change from previous year)
- Median household income: $37,490 (+3.0%)
Companies were already starting to experiment with automation to improve productivity in the early 1950s. In 1952, General Electric began using an IBM 701 to automate engineering calculations at a jet-engine operation in Ohio.
- Labor productivity index: 28.41 (+2.4% change from previous year)
- Median household income: $40,473 (+8.0%)
The first high-level programming language, A-0, was invented by Grace Hopper in 1953. It would evolve into the widely-used COBOL, which advanced the capabilities of computers.
- Labor productivity index: 28.97 (+2.0% change from previous year)
- Median household income: $39,610 (-2.1%)
Many Americans were feeling pessimistic about the economy from 1953-1954 after the Federal Reserve implemented policies that caused a major swing in interest rates. That, in turn, caused a reduction in aggregate demand, potentially forcing companies to slow down the speed at which they ramped up output.
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- Labor productivity index: 30.21 (+4.3% change from previous year)
- Median household income: $42,152 (+6.4%)
The world’s first hard drive was invented in late 1955. While large and bulky, it could access a file in just one second, speeding up workers’ productivity.
- Labor productivity index: 30.03 (-0.6% change from previous year)
- Median household income: $44,936 (+6.6%)
The interstate highway system was created in 1956 when President Dwight Eisenhower approved the Federal-Aid Highway Act. The 41,000-mile network of highways would go across the country, allowing for faster shipment of goods.
- Labor productivity index: 30.80 (+2.6% change from previous year)
- Median household income: $45,189 (+0.6%)
The Eisenhower Recession hit the U.S. from 1957-1958, dragging down gross domestic product by 3.3%. Even though labor productivity still increased, median household income fell slightly, potentially the result of a spike in unemployment.
- Labor productivity index: 31.51 (+2.3% change from previous year)
- Median household income: $45,009 (-0.4%)
A General Electric engineer unveiled a prototype for a human exoskeleton in 1958. Dubbed Handyman, it featured robotic arms with claws and handles that came over its shoulders, bringing the sci-fi fantasy of an augmented worker to life.
- Labor productivity index: 32.63 (+3.5% change from previous year)
- Median household income: $47,436 (+5.4%)
Two engineers from Fairchild Corp. and Texas Instruments developed ways to “shrink the discrete components of a computer circuit board onto a sliver of silicon…and germanium” in 1959, according to Forbes. The integrated circuit would decrease the cost of a computer, while giving it significantly more power.
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