Why Aren’t Workers Benefiting from Labour Productivity Growth in the United States?

Changes in real wages, or wages adjusted for the cost of living, are the most direct route through which labour productivity affects living standards. Yet labour productivity in the United States increased by 80 per cent between 1973 and 2011, while median real hourly wages remained virtually stagnant. This article presents a framework in which this reality is decomposed into four components: deterioration of labour’s terms of trade, rising benefits as a share of wages, decline of the share of labour compensation in GDP, and rising wage inequality. Since 2000, the historically large gap between real median wages and productivity in the United States was driven by rising wage inequality and the decline of labour compensation as a share of GDP.