American Capitalism Isn’t Broken After All
Lawrence argues that to make a valid comparison, the figures need to be adjusted in four ways. First, you need to look at the wages of all workers, not just the production and nonsupervisory workers included in the usual series. Next, you need to measure total pay — including health insurance and other benefits — not just wages.
Third, to see whether workers are getting the share of output you’d expect, you have to adjust correctly for inflation.
Fourth, you should look at net output not gross. The difference is depreciation — capital that gets used up in production, which in turn reduces what can be paid out to owners and workers.
.. If the prices of housing, health care and education continue to rise faster than other prices, they’ll swallow the income gains due to productivity that most workers would otherwise enjoy. However, the reason for slow growth in living standards won’t be a fundamental logical contradiction of capitalism or a breakdown in the social contract, but the peculiarities of those particular segments of the economy.