Compensation Off-Kilter with Productivity

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Does it seem like workers are frustrated with a gnawing sensation that something is awry?  This itchy feeling that paychecks don’t quite match up with work accomplished has particular validity in this decade.

Recruiters are undoubtedly aware of this as they communicate companies’ salaries to job candidates.  There is often an accompanying sense that salaries are not growing, even as expectations for workers rise.

The Bureau of Labor Statistics has measured this tension according to the gap between real hourly compensation and labor productivity.  This “wage gap” indicates whether workers’ compensation is keeping up with productivity.  The statistics available below show how this past decade has faced a sizable wage gap.

Since the 1970s, growth in inflation-adjusted, or real, hourly compensation—a measure of workers’ purchasing power—has lagged behind labor productivity growth.  Perhaps this correlates to the dwindling presence of union labor in the country, as unions have consistently been a voice in promoting workers’ adjusted compensation.

Growth of productivity and real hourly compensation in the nonfarm business sector (which accounts for three-fourths of output and employment in the total U.S. economy) was robust until 1973, at which time growth slowed in both measures.  During the 1947–73 period, the annual change in productivity averaged 2.8 percent, while real hourly compensation growth averaged 2.6 percent.  Over the 1973–79 period, the averages were 1.1 and 0.9 percent, respectively.

Real hourly compensation growth failed to keep pace with accelerating productivity growth over the past three decades, and the gap between productivity growth and compensation growth widened.  Over the 2000–09 period, growth in productivity averaged 2.5 percent; growth in real compensation averaged 1.1 percent over the same period.

Although this may be difficult to measure within some areas of business where productivity is more difficult to measure, do you think there is a wage gap within your profession?

 

By Marie Larsen