When Productivity Doubles but Wages Don’t:

Lead sentence:
Over the last four decades, the American economy has grown more efficient, yetthe gains from that efficiency have been distributed with striking asymmetry.

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1. A Growing Economy Without Growing Paychecks

Since roughly1980, the productivity of American workers has nearly doubled. As Josh Bivensand others at the Economic Policy Institute emphasize, each worker nowcontributes far more economic value than a generation ago.

But thepromise that once anchored the American labor market—higher productivityleads to higher wages—has quietly eroded.

For productionand nonsupervisory workers, wages have stagnated, barely moving even asthe country produced more wealth than ever before. The economy expanded,corporate profits rose, and technological efficiency surged, yet the typicalworker’s paycheck remained stuck.

Thisdivergence is now one of the deepest fractures in the modern U.S. economy.

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2. When Inequality Accelerates at the Top

Wagestagnation is only one side of the story. The other is the dramatic escalationof income at the very top.

Salaries forthe top 1%—corporate executives, finance professionals, and other high-incomeearners—rose more than 150% between 1979 and 2012. And within that topslice, inequality sharpened even further:
the top 0.1% nearly tripled their share of national income between 1980and 2013, according to updated tables from Piketty and Saez.

In otherwords, while most American workers saw little change in their economicstanding, the gains from rising productivity flowed upward—to investors, majorshareholders, senior executives, and those whose income is tied not to hourlywages but to financial returns.

This is notsimply a story of a few individuals becoming richer. It reflects a structuralshift in how the U.S. rewards labor versus capital, and how institutionsmediate that split.

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3. The Systemic Tilt: Why Productivity Gains No Longer Reach Workers

Several forcesconverged to widen this gap:

• Declining bargaining power of     labor
• Financialization of corporate     priorities
• Outsourcing and global supply     chains
• CEO compensation increasingly     tied to stock performance
• Technology that amplified     returns to capital over returns to work

Each of thesedynamics made it easier for firms to channel new wealth toward owners and topexecutives, rather than toward the broad workforce whose productivity made thatwealth possible.

The result isan economy in which efficiency rises but the lived experience of workersdoes not—a pattern that corrodes both economic mobility and trust indemocratic institutions.

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4. A Fragile Social Contract

Whenproductivity surges but wages remain stagnant, the implicit social contract ofAmerican capitalism begins to fray.

Students andyoung workers sense that effort alone may no longer secure a stable life.Communities see wealth accumulate in narrow corners of the economy even aslocal wages stagnate. And across the political spectrum, frustrationgrows—often expressed through polarization, cynicism, or the search forsimplistic solutions.

The wideningdivide between productivity and pay is not only an economic problem; it is ademocratic one. It shapes how people perceive fairness, opportunity, and thelegitimacy of national institutions.

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5. Looking Ahead: The Tax System as a Mirror of National Priorities

If the UnitedStates has entered an era in which most of the gains from growth accrue to thetop, the next question becomes unavoidable:

Why does our system allow this pattern to persist?

Part of theanswer lies in the structure of the U.S. tax code—how it privileges capitalincome over labor income, how it treats wealth accumulation, and how itresponds (or fails to respond) to extreme concentration at the top.

The next essaywill explore this directly:
Why strengthening capital taxation—including taxes on wealth, capital gains,and large estates—is essential for reconnecting economic growth withbroad-based prosperity.

Thisconversation is not about punishment or resentment; it is about designing asystem that honors the core American belief that shared prosperity is botheconomically efficient and morally necessary.