The Productivity–Pay Gap

Updated July 2019 Most Americans believe that a rising tide should lift all boats—that as the economy expands, everybody should reap the rewards. And for two-and-a-half decades beginning in the late 1940s, this was how our economy worked. Over this period, the pay (wages and benefits) of typical workers rose in tandem with productivity (how much workers produce per hour). In other words, as the economy became more efficient and expanded, everyday Americans benefited correspondingly through better pay. But in the 1970s, this started to change.

The gap between productivity and a typical worker’s compensation has increased dramatically since 1979 : Productivity growth and hourly compensation growth, 1948–2018 Year Hourly compensation Net productivity 1948 0.00% 0.00% 1949 6.24% 1.55% 1950 10.46% 9.34% 1951 11.74% 12.24% 1952 15.02% 15.49% 1953 20.82% 19.41% 1954 23.48% 21.44% 1955 28.70% 26.38% 1956 33.89% 26.59% 1957 37.08% 30.04% 1958 38.08% 32.72% 1959 42.46% 37.63% 1960 45.38% 40.06% 1961 47.84% 44.37% 1962 52.32% 49.80% 1963 54.86% 55.03% 1964 58.32% 59.94% 1965 62.27% 64.92% 1966 64.70% 69.95% 1967 66.68% 71.98% 1968 71.05% 77.13% 1969 74.39% 77.85% 1970 76.81% 80.35% 1971 81.66% 87.10% 1972 91.34% 92.20% 1973 90.96% 96.96% 1974 87.05% 93.83% 1975 86.86% 98.11% 1976 89.35% 103.59% 1977 92.82% 106.05% 1978 95.66% 108.27% 1979 93.25% 108.11% 1980 88.05% 106.77% 1981 87.36% 110.50% 1982 87.70% 108.37% 1983 88.49% 114.51% 1984 87.03% 120.21% 1985 86.18% 123.65% 1986 87.25% 128.28% 1987 84.67% 128.80% 1988 84.02% 132.01% 1989 83.93% 134.12% 1990 82.37% 136.95% 1991 82.02% 138.50% 1992 83.20% 147.48% 1993 83.46% 148.51% 1994 83.89% 150.54% 1995 82.76% 151.59% 1996 82.87% 156.24% 1997 84.87% 160.72% 1998 89.27% 166.21% 1999 91.98% 173.46% 2000 92.96% 179.47% 2001 95.60% 183.71% 2002 99.49% 191.50% 2003 101.58% 201.22% 2004 100.56% 209.29% 2005 99.73% 215.29% 2006 99.88% 217.61% 2007 101.45% 219.78% 2008 101.39% 221.39% 2009 109.30% 228.75% 2010 111.00% 238.23% 2011 108.47% 238.21% 2012 106.50% 239.57% 2013 108.40% 240.96% 2014 109.08% 242.91% 2015 112.41% 245.75% 2016 114.39% 246.34% 2017 114.67% 249.78% 2018 115.62% 252.90% Chart Data Download data The data below can be saved or copied directly into Excel. The data underlying the figure. Notes: Data are for compensation (wages and benefits) of production/nonsupervisory workers in the private sector and net productivity of the total economy. “Net productivity” is the growth of output of goods and services less depreciation per hour worked. Source: EPI analysis of unpublished Total Economy Productivity data from Bureau of Labor Statistics (BLS) Labor Productivity and Costs program, wage data from the BLS Current Employment Statistics, BLS Employment Cost Trends, BLS Consumer Price Index, and Bureau of Economic Analysis National Income and Product Accounts Updated from Figure A in Raising America’s Pay: Why It’s Our Central Economic Policy Challenge (Bivens et al. 2014) Share on Facebook Tweet this chart Embed Copy the code below to embed this chart on your website. Download image Productivity–Pay Tracker Change 1979–2018: Productivity +69.3% Hourly pay +11.6% Productivity has grown 6.0x more than pay

Since 1979, pay and productivity have diverged.

From 1979 to 2018, net productivity rose 108.1 percent, while the hourly pay of typical workers essentially stagnated—increasing only 11.6 percent over 39 years (after adjusting for inflation). This means that although Americans are working more productively than ever, the fruits of their labors have primarily accrued to those at the top and to corporate profits, especially in recent years.

Why this happened—and how we can fix it

Rising productivity provides the potential for substantial growth in the pay for the vast majority. However, this potential has been squandered in recent decades. The income, wages, and wealth generated over the last four decades have failed to “trickle down” to the vast majority largely because policy choices made on behalf of those with the most income, wealth, and power have exacerbated inequality. In essence, rising inequality has prevented potential pay growth from translating into actual pay growth for most workers. The result has been wage stagnation.

For future productivity gains to lead to robust wage growth and widely shared prosperity, we need to institute policies that reconnect pay and productivity and restore worker power, such as those in EPI’s First Day Fairness Agenda and the Agenda to Raise America’s Pay. Without such policies, efforts to spur economic growth or increase productivity (the largest factor driving growth) will fail to lift typical workers’ wages.

Resources

The State of American Wages 2017: Wages Have Finally Recovered from the Blow of the Great Recession but Are Still Growing Too Slowly and Unequally | March 1, 2018

Rising wage inequality has been a defining feature of the American economy for nearly four decades. Although we are seeing broad-based wage growth in 2017 data, ordinary workers are just making up lost ground rather than getting ahead.

First Day Fairness: An Agenda to Build Worker Power and Ensure Job Quality | August 22, 2018

First Day Fairness is the right of all workers to a fair system of work from their first day on the job. EPI’s First Day Fairness Agenda is a systematic, wide-ranging policy agenda to shift economic leverage back to workers.

Understanding the Historic Divergence Between Productivity and a Typical Worker’s Pay: Why It Matters and Why It’s Real | September 2, 2015

This paper provides an updated analysis of the productivity–pay disconnect and the factors behind it, and explains the measurement choices and data sources used to calculate the gap.

Raising America’s Pay: Why It’s Our Central Economic Policy Challenge | June 4, 2014

Broad-based wage growth is the key to reversing the rise of income inequality, enhancing social mobility, reducing poverty, boosting middle-class incomes, and aiding asset-building and retirement security.

How to Raise Wages: Policies That Work and Policies That Don’t | March 19, 2015

Wage stagnation is not inevitable. It is the direct result of public policy choices on behalf of those with the most power and wealth that have suppressed wage growth for the vast majority in recent decades. Thus, because wage stagnation was caused by policy, it can be alleviated by policy.