VERY GOOD READ
Workers Wages Aren't Rising Even Though They're More Productive
One of the most frustrating parts of the sluggish recovery has been paltry wage gains for most workers. The stock market may be booming, corporate profits increasing, and home values rising, but middle and lower-class workers often don't truly feel the benefit of such improvements unless wages rise.
But wage stagnation isn't just a problem borne of the financial crisis. When you look at the relationship between worker wages and worker productivity, there's a significant and, many believe, problematic, gap that has arisen in the past several decades. Though
productivity (defined as the output of goods and services per hours worked) grew by about 74 percent between 1973 and 2013, compensation for workers grew at a
much slower rate of only 9 percent during the same time period, according to data from the
Economic Policy Institute.
Productivity vs. Compensation
Economic Policy Institute
I spoke with Jan W. Rivkin, an economist and senior-associate dean for research at Harvard Business School who studies labor markets and U.S. competitiveness, in order to learn more about the history of the gap, and what it means for workers and the broader economy. The interview that follows has been lightly edited and condensed for clarity.
Gillian White: So how long has the gap between wages and worker productivity persisted, and what does it mean for workers, other than the fact that they aren't seeing significant wage gains?
Jan Rivkin: From the end of WWII until the 1970s productivity in the U.S. and median wages grew in lockstep. But from the late 1970s until today we've seen a divergence, with productivity growing faster than wages. The divergence indicates that companies and the people who own and run them are doing much better than the people who work at the companies.
If the U.S. economy was healthy and competitive, we'd see firms able to do two things: win in the global marketplace and lift the living standards of the average American. Large businesses and the people who run them, and invest in them, are thriving but working and middle-class Americans are struggling—as are many small businesses.
Rivkin: There are a number of causes, one is the underlying shift in technology and globalization. Another is systematic underinvestment in the commons, which is a set of shared resources that every business needs in order to be productive: an educated populace, pools of skilled labor, a vibrant network of suppliers, strong infrastructure, basic R&D and so on. A third is shifts in institutions and politics and bargaining power, which is embodied in the decline in collective bargaining and the weakening of labor unions. There's no question that that is part of the story. How large a part? I don't think anyone has a well-informed perspective.
White: Ok, so let’s talk more about some of the principal reasons this gap developed and then started to widen.
Rivkin: Starting in the 1980s changes in geopolitics and technology opened the world for business. It became possible to do business from anywhere and to automate an increasing array of activities. Globalization and technological change brought great benefits to the U.S. economy, but it had a few other consequences.