January 2011

The compensation-productivity gap: a visual essay

Susan E. Fleck, John L. Glaser, Shawn Sprague

Productivity and compensation measures yield information on the extent to which the employed benefit from economic growth. Productivity growth provides the basis for rising living standards; real hourly compensation is a measure of workers’ purchasing power. Increases in labor productivity—the most commonly used productivity measure—reflect investments in capital equipment and information technology, and the hiring of more highly skilled workers. Employers’ ability to raise wages and other compensation is tied to increases in labor productivity. Since the 1970s, growth in inflation-adjusted, or real, hourly compensation has lagged behind labor productivity growth. This gap between the two measures is the subject of this visual essay. The gap between real hourly compensation and labor productivity is one of a number of “wage gaps” that indicate whether workers’ compensation or wages keep up with productivity. There are a number of sources for compensation measures, as well as different ways to apply price indexes to adjust for inflation.1 This visual essay presents real hourly compensation data based on compensation data from the National Income and Product Accounts, which is the same source that the BLS productivity program uses for output. Compensation data are adjusted by using a consumer price index, and output is adjusted by using an implicit price deflator. The gap between real hourly compensation and labor productivity will be referred to in this essay as the compensation–productivity gap.

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