The data series and methods we use to construct our graph of the growing gap between productivity and typical worker pay best capture how income generated in an average hour of work in the U. American workers has emerged as a central issue in economic policy debates, with candidates and leaders of both parties noting its importance. This is the 5 choices to extraordinary productivity pdf welcome development because it means that economic inequality has become a focus of attention and that policymakers are seeing the connection between wage stagnation and inequality.
Put simply, wage stagnation is how the rise in inequality has damaged the vast majority of American workers. As we argued, better policy choices, made with low- and moderate-wage earners in mind, can lead to more widespread wage growth and strengthen and expand the middle class. This paper updates and explains the implications of the central component of the wage stagnation story: the growing gap between overall productivity growth and the pay of the vast majority of workers since the 1970s. A careful analysis of this gap between pay and productivity provides several important insights for the ongoing debate about how to address wage stagnation and rising inequality. Yes, the policy shifts that led to rising inequality were also associated with a slowdown in productivity growth, but even with this slowdown, productivity still managed to rise substantially in recent decades. But essentially none of this productivity growth flowed into the paychecks of typical American workers. Third, although boosting productivity growth is an important long-run goal, this will not lead to broad-based wage gains unless we pursue policies that reconnect productivity growth and the pay of the vast majority.
It has also attracted criticisms from those looking to deny the facts of inequality. As we demonstrate, the data series and methods we use to construct our graph of the growing gap between productivity and typical worker pay best capture how income generated in an average hour of work in the U. American workers rose in line with increases in economy-wide productivity. Thus hourly pay became the primary mechanism that transmitted economy-wide productivity growth into broad-based increases in living standards. Since 1973, hourly compensation of the vast majority of American workers has not risen in line with economy-wide productivity.
2 percent between 1973 and 2014. Yet inflation-adjusted hourly compensation of the median worker rose just 8. 20 percent annually, over this same period, with essentially all of the growth occurring between 1995 and 2002. Another measure of the pay of the typical worker, real hourly compensation of production, nonsupervisory workers, who make up 80 percent of the workforce, also shows pay stagnation for most of the period since 1973, rising 9. Again, the lion’s share of this growth occurred between 1995 and 2002. 1973 and 2014, faster than the meager 0. 20 percent annual rise in median hourly compensation.
In essence, about 15 percent of productivity growth between 1973 and 2014 translated into higher hourly wages and benefits for the typical American worker. Since 2000, the gap between productivity and pay has risen even faster. The net productivity growth of 21. 6 percent from 2000 to 2014 translated into just a 1. If the hourly pay of typical American workers had kept pace with productivity growth since the 1970s, then there would have been no rise in income inequality during that period. For example, even the lowest-paid American workers have made considerable gains in educational attainment and experience in recent decades, which should have raised their productivity.
However, it is clear by now that this potential is unrealized for many Americans: Wages and compensation for the typical worker have lagged far behind the nation’s productivity growth in recent decades, and this reflects a break in a key transmission mechanism by which productivity growth raises living standards for the vast majority of workers. The data below can be saved or copied directly into Excel. The data underlying the figure. Net productivity” is the growth of output of goods and services minus depreciation per hour worked. Copy the code below to embed this chart on your website. The hourly compensation of a typical worker essentially grew in tandem with productivity from 1948 to 1973. After 1973, these series diverge markedly.
Between 1973 and 2014 productivity grew 72. 33 percent each year, while the typical worker’s compensation was nearly stagnant, growing just 0. 22 percent annually, or 9. Further, nearly all of the pay growth over this 41-year period occurred during the seven years from 1995 to 2002, when wages were boosted by the very tight labor markets of the late 1990s and early 2000s. Between 1973 and 2014 the median worker’s inflation-adjusted hourly compensation grew just 0. 20 percent annually, and 8. Figure B also presents the growth in average hourly compensation—the average for all workers, including both top executives and low-wage workers—which rose 42.