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This is 'more damaging...than the Great Recession'

The U.S. has an economic crisis on its hands that one economist thinks is worse than the Great Recession.

Over the past year, productivity has increased just 0.3 percent and a mere 0.5 percent over the past five years, during which the economy has struggled to escape the clutches of the financial crisis and the recession that supposedly ended in mid-2009.

The result has been growth in job creation but little corresponding rise in wages and, subsequently, living standards. It's essentially been the economy's dirty little secret even as Wall Street forecasters continue to project breakout growth that never seems to come.

"This topic is still getting almost no attention—particularly among presidential candidates—but there is a case to be made that the stagnation in productivity has been more damaging to the real living standards of Americans than the Great Recession," Paul Ashworth, chief U.S. economist at Capital Economics, said in a note to clients. "Productivity growth is the primary driver of gains in real wages." (Tweet this)

Indeed, wage growth has been stuck around 2 percent or lower for pretty much all of the post-recessionary period. So while stock market investors enjoy the fruits of never-before-seen easy monetary policy—with the S&P 500 up about 210 percent since March 2009—it's been a different story for much of the labor force.

"The longer this slump goes on, the harder it is to believe that the economy will just snap out of it," Ashworth said. "For all the talk of secular stagnation and permanently weak demand, it may be supply-side problems that are the bigger problem."

Worker jobs
Scott Eells | Bloomberg | Getty Images

To be sure, there are some signs that wages are thawing. Unit labor costs are up 2.1 percent over the past year, providing some encouragement that inflation—the good kind—is on the rise.

However, the anemic production numbers triggered worry that the economy is no closer to 3 percent-plus gross domestic product growth than it's been throughout the recovery period. As has been pointed out many times, this is the worst recovery since the Great Depression, with GDP unable to crack 2.5 percent for any calendar year since the crisis.

Read More Fed's trillions haven't helped worker paychecks

Some economists already are retreating from their growth hopes, with Ashworth now wondering whether "the economy's potential growth rate appears to have fallen well below 2 percent."

"This has massive implications for the economy," said Stephen Stanley, chief economist at Amherst Pierpont Securities. "As people are finally realizing, it means that potential growth is sharply lower than where most economists were assuming up until recently. These data suggest that potential real growth is well short of 2 percent (possibly even below 1 percent), which explains why the labor market has tightened so much over the past five years despite what was considered at the time to be tepid GDP growth."

The weak wage gains and productivity growth won't in themselves dissuade the Federal Reserve's Open Market Committee from raising rates, perhaps as soon as September, several economists said.

Read MoreGross: Low rates are the problem, not the solution

"With potential GDP growth possibly only around 1 percent, annualized gains in unit labor costs of around 2 percent should help push core inflation up to a similar rate over the next couple of years," Deutsche Bank economists said in a note. "The current trend in the data strongly suggests the unemployment rate will finish this year below 5 percent, which is well ahead (yet again) of the FOMC's 2016 central tendency of 4.9 percent to 5.1 percent. This will make the Fed increasingly uncomfortable with a zero percent funds rate."