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The ‘New Economy’—Viewpoints | EPI

Opinion pieces and speeches by EPI staff and associates.


The ‘New Economy’

by Lawrence Mishel

Whether you get your economic news via television, newspapers or magazines, one is not able to go too long without coming across the notion that the United States has entered an era of a “new economy.” Information technology, we’re told, is fueling an ascent to a breathtaking age of prosperity for all.

It’s true that increasingly advanced technology now surrounds many Americans in their workplaces and homes, as computers and other high-tech devices are commonplace, use of the Internet has risen at a meteoric pace, and most newspapers have sections each Sunday that list only high-technology jobs. Even more technological progress is promised, as we’re told that our phones will have the capacity to relay video and our televisions will function as computers. It’s a whole new high-tech world out there — how can it not improve the economy?

We must remember, however, to accept anecdotes for what they are. This story, appealing as it may be, doesn’t correspond to actual trends in the labor market.

For instance, a transition to an information/technology (IT)-based economy presumably would lead to better times for educated, highly skilled workers. But, according to figures from The State of Working America 1998-99, inflation-adjusted wage growth for white-collar, college-educated male workers has been worse in the 1990s than it was in the 1980s, despite improvement over the last eighteen months.

This is because the decades-long shift from blue-collar to white-collar employment actually slowed during the current business cycle and projections through 2005 forecast more of the same. Furthermore, this relatively slow white-collar growth has been accompanied by historically high rates of white-collar job displacements from downsizing, as well as by greater job instability and insecurity.

Reflecting this poor environment for white-collar workers, the entry-level wages for new college graduates in 1997 were 7 percent below the wages earned by their peers in the late 1980s. Even college-educated workers in the IT field haven’t fared particularly well. In 1997, for example, young engineers and scientists were earning 11 percent and 8 percent, respectively, less than their counterparts in 1989, despite notable wage growth over the 1996-97 period. And young college graduates working in the computer and mathematics fields earned only 5 percent more in 1997 than in 1989, with the bulk of that gain coming only in the last year, after seven years of wage stagnation.

These documented trends simply don’t comport with the story that IT is transforming the workplace, lifting those with relevant skills to greater prosperity while leaving the rest of the workforce behind. In truth, the experience of white-collar workers in the 1990s as a whole — with wage losses, displacement and job instability — mirrors that of blue-collar workers in the 1980s.

How can the IT “revolution” be expected to lift all our wages when it can’t even do so for white-collar workers and young college graduates — presumably the best-educated, most computer literate and flexible segment of the workforce?

Given the failure of the “knowledge economy” to sustain it’s workers, one might want to question whether we are in a “new economy” at all. Of course, the economy is always changing, renewing and reformulating itself. The question is whether there is evidence of our ascending to a permanently better or more efficient economy. This boils down to the question of whether productivity, i.e., the growth in output created per hour worked, is now growing faster. The answer is no – productivity growth in this recovery (1992-99) or in this business cycle (1989-99) has been about 1 percent per year, a growth comparable to that of the recoveries and business cycles over the 1970s and 1980s, and far less than the output of the 1950s and 1960s.

There was, however, a 2 percent-per-year productivity growth in 1996 and 1997. Nevertheless, this is scarcely evidence of a “new economy” as it is hard to believe that new technologies would suddenly affect productivity in 1996 and 1997 after having no impact over 1993-95. An explanation of the recent productivity growth is likely due to a sustained low unemployment environment where business is producing more than expected and where qualified workers cannot be readily added.

All in all, there’s little factual evidence to indicate that changes in the economy have led to a greater long-term capacity of the U.S. economy to raise incomes or produce goods and services. Current trends — featuring job dislocations, economic vulnerability and the long-term erosion of wages — clearly do not support the notion of an improved economy. You can call it whatever you want, but for the vast majority of Americans the vaunted “new economy” will look an awful lot like the old one as soon as unemployment rises due to a recession or slowing economy.


Lawrence Mishel is the vice president at the Economic Policy Institute and a co-author of State of Working America 1998-99.

NOTE: All data are taken from The State of Working America 1998-99. Mishel, Lawrence, Jared Bernstein, and John Schmitt. 1999. Ithaca, N.Y.: Cornell University Press.