In contrast to the last four decades, from the 1940s the wages and productivity rose in tandem for almost 25 years, as many economists predict should happen. Of late, productivity growth has slowed but even the Wall Street Journal takes note of the disconnect between earlier productivity growth with little or no wage growth: Real wage growth has generally lagged behind productivity growth during the expansion. That has confounded economists and Federal Reserve officials. Most blame slack in the labor market that isn’t captured in the unemployment rate, such as the many people working part time who would like to work full time.
The Atlantic also notes:
One of the most frustrating parts of the sluggish recovery has been paltry wage gains for most workers. The stock market may be booming, corporate profits increasing, and home values rising, but middle and lower-class workers often don’t truly feel the benefit of such improvements unless wages rise
The Economic Policy institute(EPI) has a series of charts that graphically display the relationship between wage growth and productivity but other factors as well. Their explanation of the divergence, unlike that of the Wall Street Journal is that more of the productivity gains are distributed to managers and executives, as well as added to corporate profits.
In 1965 CEOs made on average 20 times what the average worker made. In 1979, the ratio was higher at 29.9 and a decade later in 1989 it was almost double that at 58.7. At present, the ratio is 303.4 but this is down a little from the Great Recession. Nevertheless, it is an astonishing jump from earlier values.
Women’s wages have grown even less in relation to productivity than that of male workers since there is still a significant wage gap between the two.The percentage of women between 25 and 54 with a job is less now in the U.S. than in some other industrialized countries. In 1995 the US share was among the highest of any developed country but now, since 2000, the share has dropped in the US while rising in Japan, Germany, and Canada.
The EPI attributes much of the divergence between productivity hikes and wage gains to the increasing inequality evident in the United States: Since 2000, more than 80 percent of the divergence between a typical (median) worker’s pay growth and overall net productivity growth has been driven by rising inequality (specifically, greater inequality of compensation and a falling share of income going to workers relative to capital owners). Over the entire 1973–2014 period, rising inequality explains over two-thirds of the productivity–pay divergence.”
The EPI argues that most of the increased inequality in the US would have been avoided if wage increases had kept pace with productivity gains as happened after World War II. Policies for economic growth, the EPI argues, should be supplemented by policies that bridge the gap between wages and increased productivity. The EPI is a think tank associated with the U.S. labor movement.
