Economic Snapshot | Retirement

Productivity growth outstrips compensation, wages

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Snapshot for April 12, 2000

Productivity growth outstrips compensation, wages

Measuring the growth in this business cycle of productivity, compensation, and median wages reveals some unsettling trends. The figure below plots the growth of labor productivity (output per hour) against the growth of real (i.e., inflation-adjusted) compensation and the real median wage. Although all three measures were flat over the recession of 1990-91, productivity began growing in 1991 and continued to grow consistently for the rest of the business cycle. Wages, however, have not kept up with productivity’s growth. After growing 5% in the first few years of the recovery, real compensation was flat through 1997, and the wage of the typical (median) worker actually declined through 1996. Thanks to the tightening up of the labor market over the past few years, both real compensation and median wages began to rise, but neither gap had closed by the end of 1999.

The first gap — that between the growth of average compensation and median wages — reflects a pattern growing wage inequality during this recovery. The second is the gap between wage and productivity growth. While the economic pie (productivity) got bigger in this period, the slices going to the “bakers” — the workers responsible for productivity’s growth — grew at a slower rate.

Methods and Sources: The productivity and compensation series are from the BLS series for the nonfarm business sector. The quarterly median wage data are from the EPI QWES series. Note that the productivity series is deflated by an output deflator and the wage series are deflated by the consumer price index. For a further discussion of these issues, see State of Working America, 1998-99, pp. 153-54. Research assistance provided by Megumi Kubota.

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