Political  Calculations

Earlier this year, we posed the following challenge for our readers:

Why does the following chart, which spans 50 years of data for the United States in the post World War 2 era, look the way it does?

In this chart, we observe that the ratio of the U.S. National Average Wage Index starts off at a level 127.3% of the U.S.' GDP per Capita in 1951, slowly rises to peak at 137.8% of GDP per Capita ten years later in 1961, then falls steadily for the next three decades until 1994 when it flattened out at around 88.3% of the U.S.' GDP per Capita.

Since then, it has been as high as 91.3% of GDP per Capita in 2001, and as low as 86.2% of GDP per Capita in 2006. In 2010, the ratio of the U.S. National Average Wage Index to GDP per Capita is 88.6%.

What we can't explain is why these patterns exist. How can the average wage earned by individuals in the U.S. go from being as much as 37.8% higher than the U.S.' GDP per Capita over forty years ago to being steadily 11.4% below that quantity three decades later. What factors caused this ratio to first rise, then fall, then stabilize?

Ratio of U.S. National Average Wage Index to GDP per Capita, 1951-2010

Several of our readers responded, offering the following possibilities:

  • Why the ratio was rising from 1950 to 1961:
    • Casualties in World War 2 reducing the pool of able-bodied men available to work, which boosted wages.
  • Why the ratio fell so dramatically from 1961 to 1994:
    • Technology replacing human capital in the workforce.
    • An increasing share of women entering the workforce at lower wages.
    • Baby boomers entering the U.S. workforce at lower wages.
    • Declining union membership in the private sector.
    • A declining portion of GDP going to wages.
  • Why the ratio leveled off after 1994:
    • Baby boomers no longer entering the U.S. workforce.

Political Calculations

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