WorkSite: A Yawning Gap Between Worker Productivity and Wages

Print More

A fairer division of the gains from increased worker productivity is as American as apple pie, a think tank reports.

Scott Bauer, USDA

A fairer division of the gains from increased worker productivity is as American as apple pie, a think tank reports.

Bill Clinton is largely credited with popularizing the awkward phrase “grow the economy,” but all White House candidates and elected presidents talk about economic growth. After all, what’s not to like about having a bigger pie to carve up, or a rising tide to lift all ships, or whatever metaphor you want to use for an economy that produces more goods and services?

A new report from the Economic Policy Institute sees one thing not to like: the fact most American workers have seen little benefit from their soaring productivity over the past several decades, a major component in economic growth.

Growth fetishism reached a new peak this year when former Florida Gov. Jeb Bush said he wanted to double the average annual growth rate of the American economy to 4 percent, a goal that most economists believe is utterly fanciful but which other GOP candidates have also embraced.

Bush said in July that to reach that level of growth, people would need to work more. He quickly qualified his statement as applying only to part-time workers. Whatever he meant, he was right that increasing the labor supply — with more workers, or more hours by current workers — is one way to increase economic growth.

The other way is through increases in productivity, meaning every worker produces more per hour. Say you have a one-worker economy that makes a single product, a pie. It takes that worker an hour to make that pie, and he works 40 hours, so your economy produces 40 pies a week. You want instead to produce 80 pies a week. You can either bring in a second worker, double the first worker’s hours, or figure out a way to double his productivity.

How could he be made more productive? Maybe you buy him an electric mixer. Perhaps he comes up with a new, easier or faster recipe. Or he could figure out that it’s more efficient to cut all the apples, then make the crusts, rather than bouncing back and forth between tools and tasks—he learns to use a little specialization, in other words. Maybe he works way harder.

Some version of that process has been occurring in the United States over the past few decades.

The report out this week from EPI, written by Josh Bivens and Lawrence Mishel, finds that productivity had been growing steadily here. What hasn’t kept up are wages:

Since 1973, hourly compensation of the vast majority of American workers has not risen in line with economy-wide productivity. In fact, hourly compensation has almost stopped rising at all. Net productivity grew 72.2 percent between 1973 and 2014. Yet inflation-adjusted hourly compensation of the median worker rose just 8.7 percent, or 0.20 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 9.2 percent between 1973 and 2014. Again, the lion’s share of this growth occurred between 1995 and 2002.

Basically, about 15 percent of productivity growth from ’73 to ’14 translated into higher wages for workers, with the labor share decreasing more recently, to just 8 percent of the productivity gains from 2000 to 2014.

Why the divergence? “[P]ay failed to track productivity primarily due to two key dynamics representing rising inequality: the rising inequality of compensation (more wage and salary income accumulating at the very top of the pay scale) and the shift in the share of overall national income going to owners of capital and away from the pay of employees,” Bevins and Mishel write.

Capital, and its owners, obviously play a role in the productivity growth story: Computers are a big reason why American workers are more productive now than they used to be. There’s no realistic scenario in which all the gains born of higher productivity would go to workers. But the current split is unjust and unsustainable, the authors note: “[A]lthough 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.”

Some might hope that higher growth can moot the inequality program in America—that by increasing the size of the pie, we can avoid an inconvenient conversation about how to divvy it up. But the EPI report, combined with Bush’s sentiment about work levels, suggests that for workers to put more effort or hours on the table, they’ll need to be assured of a larger piece of the pie. Or a bigger share of the 80 pies they’ll be producing.

Worksite covers the world of work from job openings to interview tips, from unemployment numbers to workers’ rights. Tell us what issues affect your work and wages.