NCPA - National Center for Policy Analysis

Wages And Productivity

February 15, 1996

Most economists believe that wages tend to rise in line with productivity. Until recently, it looked like the rate of productivity growth had increased during the 1990s -- while wages were languishing. But new statistics released last week by the Labor Department show productivity growth has not accelerated so far this decade.

  • Since 1979, productivity has grown at a meager 1.1 percent average annual rate -- far below the 2 percent and 3 percent growth rates of the 1950s-60s.
  • And since 1989, compensation has grown an average 0.95 percent annually.

Then why are wages falling? Because:

  • Wage figures do not include health coverage and other fringe benefits to equal total compensation -- which has risen 5.4 percent since 1979, after adjusting for a rising consumer price index (CPI).
  • If one uses the personal consumption deflator, rather than the suspect CPI gauge to adjust for inflation, compensation is up 7.8 percent since 1979.
  • If adjusted for inflation in the entire economy, rather than in consumer items alone, compensation has risen 12.7 percent since 1979.

Source: Bill Montague, "Sluggish Productivity Gains Hold Wages Down," USA Today, February 15, 1996.


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