Economic Snapshot | Budget, Taxes, and Public Investment

Public and private sector compensation both stagnate as productivity rises

For more than two decades, compensation in both the public and the private sector has lagged far behind productivity growth.  The Figure charts the growth in state and local and private-sector compensation, against total growth in U.S. productivity since 1989.

As it shows, from 1989 to 2010 both public-sector and private-sector compensation has seen comparably modest growth: up 20.5% in the state/local sector, up 17.9% in the private sector. In contrast, hourly productivity grew 62.5% over the 1989-2010 period, more than three times as fast as compensation grew in either the public or the private sector. There has been much discussion of whether public-sector workers earn more or less than private-sector workers. The reality is that public-sector workers make somewhat less if one compares those with comparable education. As the Figure shows, however, the more important issue is the fact that workers in neither sector have seen their pay grow in tandem with the increase in the economic output that has been produced, a reflection of the continuing erosion of good jobs and the downward pressure on wages from globalization, deunionization, an eroded minimum wage, high unemployment, and other factors.    

See related work on Public Investment | Unions and Labor Standards

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