Economic Snapshot | Trade and Globalization

Real earnings losing ground despite productivity growth

A weekly presentation of downloadable charts and short analyses designed to graphically illustrate important economic issues. Updated every Wednesday.

Snapshot for April 25, 2001.

Real earnings losing ground despite productivity growth

As the economy’s growth has faltered, the inflation-adjusted weekly earnings of most workers have grown more slowly, even slipping into slightly negative territory in the first quarter of 2001. At the same time, a significant gap between productivity and wages has resurfaced, suggesting a potential return to growth in wage inequality.

Productivity and real weekly earnings growth

The figure shows year-over-year changes in both productivity and the real weekly earnings of production, non-supervisory workers. These workers — blue-collar manufacturing workers and non-managers in services — comprise 80% of the private sector workforce. Note that as the economy grew out of the last recession in the early 1990s, real weekly earnings growth became steadily less negative, eventually flattening in the mid-1990s, and the eventually growing along with productivity around 1997-98. Historically, when this wage series grows at the rate of productivity, it implies that the benefits of economic growth are being shared with the workers largely responsible for generating that growth.

By 1999, however, real weekly earnings growth began to fall, due mostly to faster price growth (the energy-induced increase in the consumer price index) and fewer hours of work per week. In the most recent quarter (2001 Q:1), real earnings were even slightly negative. Meanwhile, productivity continues to grow at historically high rates. These divergent trends lead to the gap between the two trends, clearly evident in the figure above. If these trends persist, working-class families will face both lower earnings and higher inequality.

This week’s Snapshot by EPI economist Jared Bernstein.

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