Return to Brookings Papers on Economic Activity
BPEA Article

Wages, Profits, and Macroeconomic Adjustment: A Comparative Study

Jeffrey D. Sachs


THE BEHAVIOR of real wages has complicated macroeconomic policy in
the industrialized world during the 1970s. Many commentators have discussed
the extraordinary increase in wage inflation in Europe and Japan
at the end of the last decade. Few have noted that the nominal wage
gains resulted in remarkable increases in real wages. The five large economies
outside North America in the Organisation for Economic Cooperation
and Development (OECD) had rapid growth of real hourly
compensation in 1969-73, along with high rates of increase of nominal
compensation. In most large OECD economies, real wages in the late
1960s grew faster than productivity, so that the distribution of income
shifted toward labor, while the rate of return on capital was substantially