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The Productivity-Median Compensation Gap in the United States: The Contribution of Increased Wage Inequality and the Role of Policy Choices

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  • Lawrence Mishel
  • Josh Bivens

Abstract

This article offers a narrative and supporting evidence on mechanisms that suppressed wage growth and generated a divergence of 43 percentage points (1.05 points per year) between net productivity and median hourly compensation growth between 1979 and 2017 in the United States. These dynamics reflect the strengthening of employers’ power relative to white-collar and blue-collar workers. We offer empirical assessments of the impact of particular factors on wage growth and wage inequality. The three factors with the largest and best measurement impacts, i.e., excessive unemployment, eroded collective bargaining, and corporate-driven globalization — explain 55 per cent of the divergence. Other factors — a diminished overtime salary threshold, employee misclassification, employer-imposed noncompete agreements, and corporate fissuring-subcontracting and major-buyer dominance — explain another 20 per cent. Together, these policy-related factors can account for threefourths of the 1979-2017 divergence between productivity and median hourly compensation growth.

Suggested Citation

  • Lawrence Mishel & Josh Bivens, 2021. "The Productivity-Median Compensation Gap in the United States: The Contribution of Increased Wage Inequality and the Role of Policy Choices," International Productivity Monitor, Centre for the Study of Living Standards, vol. 41, pages 61-97, Fall.
    • Handle: RePEc:sls:ipmsls:v:41:y:2021:3
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    File URL: http://www.csls.ca/ipm/41/IPM_41_Mishel.pdf
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    References listed on IDEAS

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    Cited by:

    1. Andreas Teichgraber & John Van Reenen, 2021. "Have Productivity and Pay Decoupled in the UK?," International Productivity Monitor, Centre for the Study of Living Standards, vol. 41, pages 31-60, Fall.
    2. Perilla Jiménez, Juan Ricardo, 2023. "Productivity, innovation and economic growth: understanding the embodied and disembodied contributions of factor inputs," Documentos Departamento de Economía 53, Universidad del Norte.
    3. Erumban, Abdul A. & de Vries, Gaaitzen J., 2024. "Structural change and poverty reduction in developing economies," World Development, Elsevier, vol. 181(C).
    4. Nicholas Oulton, 2022. "The Link Between the Standard of Living and Labour Productivity in the UK: A Decomposition," International Productivity Monitor, Centre for the Study of Living Standards, vol. 42, pages 187-211, Spring.
    5. Jacob Greenspon & Anna Stansbury & Lawrence H. Summers, 2021. "Productivity and Pay in the United States and Canada," International Productivity Monitor, Centre for the Study of Living Standards, vol. 41, pages 3-30, Fall.
    6. Andrew Sharpe & James Ashwell, 2021. "The Evolution of the Productivity-Median Wage Gap in Canada, 1976-2019," International Productivity Monitor, Centre for the Study of Living Standards, vol. 41, pages 98-117, Fall.

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