Does Higher Productivity Lead to Higher Wages?

Rohan Mascarenhas, Russell Sage Foundation
November 28, 2011

In yesterday's Chicago Tribune, columnist Phil Rosenthal talked to RSF author Harry Holzer about the relationship between higher productivity and better wages. Here was Holzer's quote:

"There's a number of economists out there like myself who, if you had asked us even a few years ago, we would have been pretty sure productivity growth was a good thing and now we're just a little more uncertain whether it's going to translate to benefits to workers," said Harry Holzer, a former chief economist for the U.S. Department of Labor who's now a professor of public policy at Georgetown University and an Urban Institute fellow.

"You look at the whole (last) decade … even at its peak, it was a very tepid labor market," he said. "You had very high productivity growth, almost none of which was being translated into worker earnings. That was troubling."

Holzer's study on wage trends in the last decade can be found here; it was published as part of RSF's Census 2010 series. But a chart in another RSF book -- Good Jobs, Bad Jobs, by Arne Kalleberg -- also illustrates what some have called the productivity puzzle: if workers are producing more at a faster rate, why aren't their wages going up?

In his book, Kalleberg explains the importance of the data presented above:

The gap between productivity and compensation began to widen in the late 1970s and has grown ever since. Indeed, the 2000s have seen a historically large gap between productivity growth and compensation.[...]The United States is unique in this respect; it is the only advanced society in which the incomes of the majority have not risen in the 1980s and 1990s, despite steady increases in productivity.

Read the first chapter of Kalleberg's book for free. You can also buy a copy of Harry Holzer's book, Where Are All The Good Jobs Going?


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