Productive Economy ≠ Higher Living Standards

Author: Allyson Stewart, Research & Public Policy Fellow, Women’s Initiative


In a recent issue brief, “The wedges between productivity and median compensation growth,” Economic Policy Institute President Lawrence Mishel debunks a common misconception: Increased productivity growth in the American economy does not benefit the average American. Instead, productivity gains have translated into exacerbated income inequality.


“We are often told that greater competitiveness and higher productivity are the keys to higher living standards,” said Mishel. “In fact, productivity growth only establishes the potential for improved standards of living. In the past four decades, and especially recently, it has not translated into proportionate gains for working families.”


The brief highlights a major divergence between productivity growth (growth of the output of goods and services per hour worked) and compensation growth for the average worker that has contributed to rising income inequality over the past thirty years and in particular the last decade. According to the brief, “Productivity in the economy grew by 80.4 percent between 1973 and 2011 but the growth of real hourly compensation of the median worker grew by far less, just 10.7 percent.” The figure below shows the rising gap between productivity and compensation:





The brief attributes this phenomenon to three causes: The rising inequality of compensation, the erosion of labor’s income share (and corresponding increase in capital income’s share), and a more minor cause, the deterioration in “labor’s terms of trade.” Essentially, firms are making more money, but not sharing it equally, or even close to equally, amongst workers. Instead, most of the gains are going to the highest paid employees and shareholders, and at the same time the cost of goods workers purchase are going up faster than their wages increase. Unless productivity gains are distributed more equally, those gains will continue to exacerbate income inequality.


At the Women’s Initiative for Self Employment we create opportunities for working class Americans to create better paying jobs for themselves, build assets, and make greater investments in labor (as opposed to capital) through small business ownership. Just one year after graduating, our clients' average household income leaps from $22,008 to $34,980—an increase of nearly 60%. Graduates also double their rate of home ownership in the two years after training, and their average household net worth grows by more than 300%, from $12,968 to $53,572. In keeping with The Andersonville Study of Retail Economics finding that local businesses spend 28 percent of revenue on labor compared to 23 percent for chains stores, we find that our graduates consistently make significant investments in their workers - Women’s Initiative graduates provide an average of 2.5 jobs through their businesses and pay an average wage of $16.45 per hour—more than double the federal and State minimum wage. These outcomes suggest that increased investment in microenterprise training and support offered by organizations like the Women’s Initiative could help close the gap between productivity growth in the U.S. economy and the well-being of the average worker.

Small is the New Big in Business

By, Guest Blogger, Allyson Stewart

More businesses are starting small and staying small according to a new study published by the Bureau of Labor Statistics in March 2012. Reversing the trend seen in the late 70’s, 80’s, and 90’s, the study finds that the average size (measured by employment) of business establishments is falling – startups went from an average of around 6.8 employees in 2001 to 4.7 employees in 2011.

You might be wondering, “Isn’t that just because businesses have had less access to capital to hire employees?” In fact, this trend toward starting small and staying small has persisted throughout the economic upswings and downturns over the past decade, with average number of employees dropping during the recessions and staying constant through the period of economic expansion. The study attributes the trend in declining establishment size in part to shifts in industry composition and in part to the age of the establishments, hypothesizing that the trend toward starting small and staying small may be in part due to an increased emphasis on technology, and a lesser emphasis on labor.

The study also finds that while the share of employment in the smallest businesses remained constant throughout the 2000’s, the share of businesses classified in the smallest size category increased – during the 2003-2007 expansion, the share of private sector businesses with fewer than 5 employees increased from 50.4% to 51%.

As more entrepreneurs decide to start small business, we expect to see an increase in demand for business training and support services appropriate for the smallest of businesses here at the Women’s Initiative, where on average our graduates provide an average of 2.5 jobs for others 5 years after graduation and see an average increase in income of almost $13,000 just 1 year after graduation.

An Inside View of Women’s Initiative (Part 2)

By, Guest Blogger, Arriel Sherman, Marketing/Events Fellow

In my last blog post, I told you about my experience as a Women’s Initiative client.  Today, I want to share my experience of being part of the Fellowship program at Women’s Initiative.  I am in my last stretch of my Fellowship and have gained so much knowledge and appreciation for Women’s Initiative by being in the office these past 12 weeks. I have witnessed the hard work and dedication that the staff and volunteers have in order to sustain a positive growth in the microenterprise community. Each position is integral to the success of the Women’s Initiative and ALAS clients. When Julie Castro Abrams, CEO of Women’s Initiative, attended the company-wide meetings out of the Oakland office I was able to admire her success and bask in the wisdom she shared.

On a more personal note, I have changed during this experience. I have learned the importance of being humble as well as becoming a strong advocate for oneself and for others. By researching and writing Success Stories about our graduates, conducting Business Status Updates, and helping to plan the 10^th Annual Fundraising Gala, I have acquired skills that I had not expected. This experience has inspired me to uplift members of my community. I believe that joy and success should be tangible for everyone, especially in their own ways. So, if I can help others to feel as I do, that would mean a lot to me. As I sat at my desk for three months, I could hear the progression of women’s ideas in the adjacent conference room and that alone keeps me motivated to support Women’s Initiative as well as motivated to continue my own entrepreneurial journey. The stories and laughter that was shared among these groups of women, has made me reminisce about my 12-week experience during the Simple Steps course. These snapshots of my hard work and perseverance, have propelled me to aggressively strive toward owning and opening my lounge in the Bay Area.  

Lastly, my goals going forward are to extend my Fellowship with Women’s Initiative so that I can continue to work with the Marketing Communications Director in preparation for the 10^th Annual Gala in May. I’ll also continue my connection to Women’s Initiative as a graduate of the program by attending the Gala as a Graduate Ambassador and access networking events. In addition to this, I plan to seek an advanced degree in business in the Fall of 2013. I have plans to center my concentration of study in entrepreneurship, marketing, or management. I am excited about my future endeavors and will continue to prepare for the amazing road ahead of me.

I hope that my story has inspired you to become involved as a volunteer with Women’s Initiative where your voice and experience is respected and much appreciated. Your assistance will help graduates become even stronger as women entrepreneurs in our local community.