BPEA | 2005 No. 2

Where Did the Productivity Growth Go? Inflation Dynamics and the Distribution of Income

Ian Dew-Becker and
Ian Dew-Becker Harvard University
Robert J. Gordon
Robert Gordon Headshot
Robert J. Gordon Stanley G. Harris Professor of the Social Sciences - Northwestern University
discussants: Daniel E. Sichel and
Headshot of Dan Sichel
Daniel E. Sichel Professor of Economics - Wellesley College
Robert Topel

2006, No. 2

THE FIRST HALF of this decade has witnessed a sharp contrast between
strong output and productivity growth, on the one hand, and slow employment
and median income growth, on the other. The strong growth in output
combined with weak growth in hours worked has resulted in an explosion in labor productivity growth, implying an underlying trend that is rising
faster than in any previous subperiod of the postwar era. Yet who received
the benefits? Median household income actually fell by 3.8 percent from
1999 to 2004 and grew from 1995 to 2004 at a rate of only 0.9 percent a
year, a much slower rate than that of nonfarm private business (NFPB)
output per hour over the same period, at 2.9 percent.3 Similarly, the
median real wage for all workers grew over 1995–2003 at an average rate
of 1.4 percent a year, less than half the rate of productivity growth.