Productivity slowdown and wage stagnation: Causes and policy implications

Productivity growth has slowed over the past two decades. Wages have decoupled from productivity, growing even more slowly or stagnating, particularly at low and middle wage levels. The resulting slower and more unequal growth in incomes has been part of the dynamics behind rising societal discontent and nationalist populism. To varying degrees, these trends are reflected in most major economies, including the United States.

Why has productivity growth slowed, despite a boom in new technologies? Why are wages decoupling from productivity, with labor income share falling and wage inequalities rising as well? Are there some common factors behind these trends? What are the implications for public policy?

On February 27, the Global Economy and Development program hosted a panel discussion that featured two recent works that address these questions: “Productivity Revisited: Shifting Paradigms in Analysis and Policy” published by the World Bank; and the “OECD Economic Outlook, November 2018.” Lead authors of these works joined the panel.