The Corner

Economy & Business

Wages and Productivity: An Overhyped Gap

Eduardo Porter writes in the New York Times today:

Stagnant wages have failed to keep up with continuing productivity gains, breaking a stable pattern that linked gains in output per worker and wages throughout much of the 20th century.” An alarming graph from the Economic Policy Institute, a union-affiliated think tank, illustrates the point. A similar graph from the same group appears on the Clinton campaign’s website, under the heading “The deck is stacked for those at the top.” On the graph are the words, “You’re working harder, but your paycheck isn’t going up.

The most important step we can take to close this gap is to start measuring these numbers correctly and consistently. We should use the same inflation adjustment when we look at compensation and productivity. We should look at the same workers, instead of excluding supervisory workers when looking at wages while including them when looking at productivity. Scott Winship, after making such adjustments, finds that the gap is small and has not been steadily widening over the last few decades, as depicted in those EPI graphs. In his corrected graph, productivity sometimes rises faster than compensation and compensation sometimes rises faster than productivity.

We should be looking for reforms that will raise wages, but we will look in the wrong places if we have the wrong diagnosis of the problem. If we accept the EPI story, for example, we might not be as interested in raising productivity because we think, probably wrongly, that it won’t translate into higher compensation.

Incidentally, Clinton’s website would be misleading even if the EPI graph were a perfect representation of reality. “Having higher productivity” is not the same thing as “working harder”; it can and often does reflect using better technology.

Ramesh Ponnuru is a senior editor for National Review, a columnist for Bloomberg Opinion, a visiting fellow at the American Enterprise Institute, and a senior fellow at the National Review Institute.


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