Lawrence Mishel — Understanding the wedge between productivity and median compensation growth

During the 1973 to 2011 period, labor productivity rose 80.4 percent but real median hourly wage increased 4.0 percent, and the real median hourly compensation (including all wages and benefits) increased just 10.7 percent. These trends are shown in the table below. If the real median hourly compensation had grown at the same rate as labor productivity over the period, it would have been $32.61 in 2011 (2011 dollars), considerably more than the actual $20.01 (2011 dollars). Consequently, the conventional notion that increased productivity is the mechanism by which living standards increases are produced must be revised to this: Productivity growth establishes the potential for living standards improvements and economic policy must work to reconnect pay and productivity....

Maintaining rapid overall productivity growth—through innovation, restoring manufacturing, improved education and skills—is obviously an important policy goal. But if we want to improve the living standards of the vast majority—and we definitely can do so given the expected productivity growth—then we must also place the challenge of reconnecting growth in overall productivity and median compensation at the center of economic policy.

Read it at The Economic Policy Institute Blog | Working Economics
Understanding the wedge between productivity and median compensation growth
by Lawrence Mishel