For decades, economic textbooks have highlighted the golden relationship between productivity and wages. As workers are able to produce more, employees reap the gains in the form of higher wages.

But this is no longer the case.

Wages and productivity climbed in lockstep between 1950 and 1980. However, there is a striking divergence between the 1980s and today.

Even with the unemployment rate near multi-decade lows, Federal Reserve Chair Janet Yellen highlighted concerns about the lack of wage growth and underemployment during her speech at Harvard last month.

“We're close to an unemployment rate that I think most economists would associate with our full employment goal. But the number of individuals working part-time who would like to have full-time jobs is unusually high,” Yellen said. “And we've really not seen much improvement in wage growth, which is suggestive of some slack in the labor market.”





Why are the gains in productivity not going back to employees?

During the Great Recession, nearly 10 million jobs were lost. And, while there have been significant job gains since then, they haven’t been the same type of jobs.

Low-wage employment saw outsized gains in the recovery, as mid-wage jobs realized the biggest losses in the recession.





While globalization and outsourcing partly contributed to the shift in jobs, technological forces and automation are the largest factors says Martin Ford, author of Rise of the Robots.

“It's not like in the past where you had technology impact specific sectors–– like for example agriculture. Today, it's everywhere. It's robots making fast food pizzas and hamburgers. It's going to be self-driving cars and trucks,” Ford says. “It's going to be smart software applications, or software robots that take on a lot of white collar jobs, often jobs done by people with college degrees and even graduate degrees.”

He expects this dynamic will cultivate adverse economic consequences, as consumers won't be able to buy the products and services being produced.



“The basic problem is that right now, jobs are the mechanism that gets money from producers, from business, to consumers, so that those consumers can buy things. If that mechanism erodes, the jobs begin to disappear, then we need to replace it with something else,” he says.



The shift in jobs has also changed the political climate as well. When the middle class is weak, he says, it fuels the anti-business, and anti-establishment vote.

“The rise of Trump, Brexit–– all of that–– is because a lot of average people who are very unhappy because they have not been making progress over the last few decades. And I think that the impact of technology has a lot to do with that,” Ford says.

