BPEA | 1994 No. 1

Productivity and Real Wages: Is There a Puzzle?

1994, No. 1

IN RECENT PUBLIC DISCUSSION of labor income in the United States,
considerable concern has been voiced that real wages are not keeping
up with productivity growth (or are declining), that sharply rising fringe
benefit costs are undermining gains in take-home pay, and that workers
in other countries are enjoying better pay increases than U.S. workers.
Two frequently cited measures published by the Bureau of Labor Statistics
(BLS), which are shown in figure 1, highlight some of these concerns.
The first measure-the growth in real hourly compensation in the
nonfarm business sector-has slowed to 0.4 percent a year from 2.4 percent
a year over the 1960-73 period. Meanwhile, hourly output per
worker has grown at 0.9 percent a year-noticeably faster than hourly
compensation, although down considerably from its 1960-73 annual
growth rate of 2.5 percent. In an economy where real wage growth has
paralleled the rise in productivity over the long run, this apparent divergence
implies that the benefits of increased productivity have not been
distributed in the expected way over the past two decades.