While a recent report by the Commonwealth Institute, “The Growing Divide: The State of Working Virginia,” issued stark warnings about growing income disparities in Virginia, it did offer one morcel of good news. Even as United States workforce productivity has soared over the past two decades or so, productivity gains in Virginia grew even faster. In inflation-adjusted numbers, Virginia productivity in 1998 stood only marginally ahead of the U.S average, with worker economic output measuring between $56,000 and $57,000 per year. By 2005, Virginia per-worker output surpassed $65,000 — surging $2,000 ahead ahead of the U.S. average, as shown in Figure 4, reproduced from the report.
In Bacon’s Rebellion’s “Economy 4.0” schema, productivity and innovation are the wellsprings of economic progress and material prosperity. It is a basic tenet of economic theory that, in the long run, wages and salaries can rise no faster than the growth rate in productivity. Rising productivity is very, very good news. Without rising productivity, there would be no growing income to distribute, either equitably or inequitably.
Write the authors: “Virginia has one of the most productive labor forces in the country. … As a result, Virginia workers continue to be competitive and have performed well in recent years. This has led some to classify Virginia’s labor forces has one of the state’s “greatest assets.”
The authors continue:
Worker productivity has grown consistently since 1991, although throughout most of the 1990s this growth was relatively small. Beginning around 1998, however, a different pattern begins to emerge. Since 1998, annual growth in worker productivity in Virginia has accelerated substantially, averaging around 3 percent per year through 2005. Additionally, during this same period Virginia’s labor productivity has generally outperformed not only the national average, but has even rivaled the highest performing state in several individual years.
Given the rising productivity, the report suggests, one would expect rising workers’ incomes as well. But, alas, growth in median household income has been erratic, declining in 2004 and 2005, as shown in Figure 6, reproduced from the report.
The question that “A Growing Divide” asks — are poorer Virginians failing to share in the general prosperity — is a legitimate one. One would like to think that all segments of society (save, perhaps, the criminal class) benefit from increasing prosperity and rising general wage/salary levels. But I would append a number of observations:
- As noted in a previous post, there are two Virginias — Northern Virginia and the Rest of Virginia — with significantly different wage levels and cost of living differentials. To what extent do the changes in statewide averages reflect shifts in regional dynamics? I don’t know, but I fear that any generalizations are of limited value until we do know.
- Real adjusted median incomes have been rising in Virginia over the long run – indeed, until 2003, it appears that they were rising faster than the national average. The last two years in the chart may be an anomaly. Let’s see what the next year’s data reveals before drawing hard-and-fast conclusions.
- It is entirely possible that the disparity in income gains reflects a disparity in productivity growth. It the fact that certain sectors of the economy are soaring in productivity, leaving other sectors as dust on the factory floor, a sign of unfairness or injustice? Can we realistically expect all sectors of the economy to advance at equal rates? Would we prefer to hold back the dyanamic sectors of the economy out of some twisted sense of social equity?
I would suggest that there are three reasons for the apparent inability of less affluent Virginians to keep pace with the more affluent. One is the impact of globalization, which provides greater rewards for those who compete successfully on a global scale. A second is the structural problem of reinventing mill-town economies, based on cheap, semi-skilled labor, for the Knowledge Economy — a process that can take years, if not decades. A third reason is illegal immigration, in which hundreds of thousands of illegals compete for lower-wage work, depressing general wage levels for those at the bottom of the economic pyramid. If we want to redress the inequality in incomes, let us first make sure we identify the underlying causes.
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