Since 2000, the gap between productivity and pay has risen even faster. In essence, about 15 percent of productivity growth between 19 translated into higher hourly wages and benefits for the typical American worker. Net productivity grew 1.33 percent each year between 19, faster than the meager 0.20 percent annual rise in median hourly compensation.Again, the lion’s share of this growth occurred between 19. 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 19. 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 19. Net productivity grew 72.2 percent between 19. In fact, hourly compensation has almost stopped rising at all. Since 1973, hourly compensation of the vast majority of American workers has not risen in line with economy-wide productivity.Thus hourly pay became the primary mechanism that transmitted economy-wide productivity growth into broad-based increases in living standards. For decades following the end of World War II, inflation-adjusted hourly compensation (including employer-provided benefits as well as wages) for the vast majority of American workers rose in line with increases in economy-wide productivity.economy has not trickled down to raise hourly pay for typical workers. 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.S. Thus in this paper we not only provide an updated analysis of the productivity–pay disconnect and the factors behind it, we also explain why the measurement choices we have made are the correct ones. It has also attracted criticisms from those looking to deny the facts of inequality. 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.Įver since EPI first drew attention to the decoupling of pay and productivity (Mishel and Bernstein 1994), our work has been widely cited in economic analyses and by policymakers. Second, pay 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. But essentially none of this productivity growth flowed into the paychecks of typical American workers. 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. First, wages did not stagnate for the vast majority because growth in productivity (or income and wealth creation) collapsed. 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. 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. 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. The Economic Policy Institute’s earlier paper, Raising America’s Pay: Why It’s Our Central Economic Policy Challenge, presented a thorough analysis of income and wage trends, documented rising wage inequality, and provided strong evidence that wage stagnation is largely the result of policy choices that boosted the bargaining power of those with the most wealth and power (Bivens et al. Put simply, wage stagnation is how the rise in inequality has damaged the vast majority of American workers. This is a 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. Wage stagnation experienced by the vast majority of American workers has emerged as a central issue in economic policy debates, with candidates and leaders of both parties noting its importance.
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