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ECONOMIC ANALYSIS: What propelled American worker to the top of heap?

September 3, 2007

The Labor Day holiday, coming as it does on the first weekend in September, was conceived to recognize the American worker, but also to contrast to the May Day holiday so popular in socialist circles.

As Labor Day passes, most of us don't mentally make the connection between the U.S. labor movement and the traditional end of summer. We're far more worried about the college football schedule and lamenting the seemingly too-early start of school for our kids (as a contrast to the endless summers of our own youths).

It is just as well the holiday has morphed away from remembrance of the labor movement of the last century. That's not because remembering isn't important, or that the U.S. labor movement wasn't valuable. Labor Day lost its significance because the challenges facing American workers in the 1890s are unimaginable today.

In 1900, half of Hoosiers worked on the farm, and inflation-adjusted income hovered at a little more than $3,000 per person. So, the average Hoosier of the time enjoyed about the same standard of living as today's residents of Kazakhstan or Jamaica.

Times were indeed hard. Today, our standard of living in Indiana is about 12 times what it was at the turn of the last century. Along with this income growth has come a 50-percent increase in life expectancy, plummeting child mortality, a 50-percent reduction in the size of the work week and, perhaps most important for the labor movement, a tenfold decrease in workplace mortality.

The American workplace is nothing like it was a century ago, but how did all this happen? Was it the labor movement or existing market forces?

The labor movement certainly deserves some credit, but it is pure market forces that are most responsible for the ascendant condition of the American worker. Here's how it happened.

Virtually all the rise in per-capita income is explained by increasing productivity of the American worker. The twelve-fold increase in living standards came about as a result of combining American workers with technology and equipment to make goods and deliver services far more efficiently.

This translated directly into higher wages. The story isn't much more complicated than that. The real puzzle is why this productivity growth hasn't reached Jamaica and Kazakhstan.

Here, too, market economics (or the lack thereof) tell a simple story. Insufficiently educated workers, the inability of entrepreneurs to access capital, and a social structure that dampened opportunity have slowed economic growth across much of the world. The America today is a century away from half the world's population.

On Labor Day, we should celebrate the many achievements of American workers in the past century. However, perhaps the greatest achievement of the American worker isn't the weekend or the 40-hour work week. The real glory of the American worker is as an example to the world of what is possible when free men and women combine their talents in a free market.



Hicks is director of the Bureau of Business Research at Ball State University. His column appears weekly. He can be reached at bbr@bsu.ed.
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