NCPA - National Center for Policy Analysis

Workers' Wages Climb On Productivity Gains

February 12, 1999

Strong gains in U.S. productivity last year propelled wages higher, reported the Labor Department earlier this week. At the same time, the wage increases didn't imperil business profits or result in sharp price increases.

  • Non-farm businesses increased workers' pay an average of 4.2 percent -- while raising the prices they charged only 0.7 percent.
  • The companies could do that without clobbering their profits because productivity gains offset 2.2 percentage points of that difference.
  • Other cost-saving actions reduced non-labor costs by 1.4 percent on each unit of output.

Many economists believe that better education and on-the-job training, major investments in computers and other information processing technology, and improved management may have increased the long-term trend in productivity growth in the U.S.

Productivity has increased an average of 1.3 percent annually over the past two decades. In the past five years, however, it increased an average of 1.4 percent. But in 1998, it shot up 2.2 percent.

Source: John M. Berry, "Productivity Gain Gives Wages a Boost," Washington Post, February 10, 1999.


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