Employee earnings are the largest category of income in the American economy, constituting about 70 percent of national income for decades on end. Because wages and salaries are so important in the lives of most individuals, there is a tendency to look at income solely from the standpoint of the individuals receiving it. However, this overlooks the important role of the price of labor in allocating resources in ways which determine the standard of living in the society as a whole. Looking at income solely from the standpoint of individual recipients also tends to portray the economy as a zero-sum game, in which what is gained by some is lost by others. But there would obviously never have been the great rises in the general standard of living which have occurred over the years and generations if that were true.
By 1994, for example, most American households living below the official poverty line had a microwave oven and a videocassette recorder, things that less than one percent of all American households had in 1971. For the population at large, homes were much bigger, automobiles were much better, and more people were connected to the Internet at the end of the century than were connected to a water supply at the beginning of the century. This was clearly not a zero-sum game, in which what some won was lost by others.
Fights over which individuals and groups get how big a slice of the pie create the kind of emotions and controversy on which the media and politicians thrive. But the economic reality is that the main reason most Americans have prospered is that the pie itself has gotten much bigger, not because this group or that changed a few percentage points in its share. The changing allocation of scarce resources which makes continuing prosperity