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Wage growth and productivity growth: the myth and reality of 'decoupling'

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Abstract

Employees in the UK are not being denied their fair share of economic growth, according to research by João Paulo Pessoa and John Van Reenen. Their investigation of claims that wage growth has become 'decoupled' from productivity growth finds that decoupling has been overstated and cannot be used to justify redressing the balance between wages and profits. They show that the share of UK income going to labour is basically the same now as it was 40 years ago. The real problem is inequality among employees: wage inequality has risen massively since the late 1970s. Improving skills in the bottom half of the education distribution will boost productivity and real wages.

Suggested Citation

  • Joao Paulo Pessoa & John Van Reenen, 2013. "Wage growth and productivity growth: the myth and reality of 'decoupling'," CentrePiece - The magazine for economic performance 401, Centre for Economic Performance, LSE.
    • Handle: RePEc:cep:cepcnp:401
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    Citations

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    Cited by:

    1. David Autor & David Dorn & Lawrence F Katz & Christina Patterson & John Van Reenen, 2020. "The Fall of the Labor Share and the Rise of Superstar Firms [“Automation and New Tasks: How Technology Displaces and Reinstates Labor”]," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(2), pages 645-709.
    2. Machin, Stephen & Bell, Brian & Bukowski, Pawel, 2018. "Rent Sharing and Inclusive Growth," CEPR Discussion Papers 13408, C.E.P.R. Discussion Papers.
    3. Dosi, Giovanni & Virgillito, Maria Enrica & Yu, Xiaodan, 2020. "The wage-productivity nexus in the world factory economy," World Development, Elsevier, vol. 129(C).
    4. 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.
    5. 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.
    6. Elliot Moiteaux & Clément Bosquet & Paul Maarek, 2021. "Routine-biased technological change and wages by education level: Occupational downgrading and displacement effects," THEMA Working Papers 2021-05, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    7. Mathieu Dufour & Özgür Orhangazi, 2016. "Growth and distribution after the 2007–2008 US financial crisis: who shouldered the burden of the crisis?," Review of Keynesian Economics, Edward Elgar Publishing, vol. 4(2), pages 151-174, April.
    8. Cristiano Cantore & Filippo Ferroni & Miguel León-Ledesma, 2021. "The Missing Link: Monetary Policy and The Labor Share," Journal of the European Economic Association, European Economic Association, vol. 19(3), pages 1592-1620.
    9. Jurica Bosna, 2018. "Estimation Of The Great Decoupling On The Example Of Croatia, As Compared With Germany And Poland," Poslovna izvrsnost/Business Excellence, Faculty of Economics and Business, University of Zagreb, vol. 12(1), pages 33-52.
    10. Nasir, Muhammad Ali & Wu, Junjie & Howes, Cameron & Ripley, Helen, 2022. "Asymmetric nexus between wages and productivity in the context of the global financial crisis," Journal of Economic Behavior & Organization, Elsevier, vol. 198(C), pages 164-175.
    11. Damian Grimshaw & Marcela Miozzo, 2021. "Human Capital and productivity: a call for new interdisciplinary research," Working Papers 006, The Productivity Institute.
    12. Neil Lee & Paul Sissons, 2016. "Inclusive growth? The relationship between economic growth and poverty in British cities," Environment and Planning A, , vol. 48(11), pages 2317-2339, November.
    13. Philippe Aghion & Terra Allas & Timothy Besley & John Browne & Francesco Caselli & Richard Davies & Richard Lambert & Rachel Lomax & Stephen Machin & Gianmarco I. P. Ottaviano & Christopher A. Pissari, 2017. "UK growth: a new chapter," CEP Reports 28b, Centre for Economic Performance, LSE.
    14. Barnett, Alina & Batten, Sandra & Chiu, Adrian & Franklin, Jeremy & Sebastia-Barriel, Maria, 2014. "The UK productivity puzzle," Bank of England Quarterly Bulletin, Bank of England, vol. 54(2), pages 114-128.
    15. Areendam Chanda & Bibhudutta Panda, 2016. "Productivity Growth In Goods And Services Across The Heterogeneous States Of America," Economic Inquiry, Western Economic Association International, vol. 54(2), pages 1021-1045, April.
    16. W. Robert Brazelton, 2019. "Constant Full Employment Growth: The Economic Analysis and Policies of Leon Hirsch Keyserling, Council of Economic Advisors – The Truman Era and Beyond," The American Economist, Sage Publications, vol. 64(1), pages 82-94, March.
    17. Nolan, Brian & Thewissen, Stefan & Roser, Max, 2016. "GDP per capita versus median household income: What gives rise to divergence over time?," INET Oxford Working Papers 2016-03, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford.
    18. Lawrence Mishel & Kar-Fai Gee, 2012. "Why Aren’t Workers Benefiting from Labour Productivity Growth in the United States?," International Productivity Monitor, Centre for the Study of Living Standards, vol. 23, pages 31-43, Spring.
    19. Anna M. Stansbury & Lawrence H. Summers, 2017. "Productivity and Pay: Is the link broken?," NBER Working Papers 24165, National Bureau of Economic Research, Inc.
    20. David M. Williams, 2021. "Pay and Productivity in Canada: Growing Together, Only Slower than Ever," International Productivity Monitor, Centre for the Study of Living Standards, vol. 40, pages 3-26, Spring.
    21. Adrjan, Pawel, 2018. "The mightier, the stingier: Firms’ market power, capital intensity, and the labor share of income," MPRA Paper 83925, University Library of Munich, Germany.

    More about this item

    Keywords

    Decoupling; Wages; Productivity; Compensation; Labour Income Share;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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