Productivity Soars, Compensation Stagnates

Productivity is an economic measure of efficiency: the ratio of output to input. U.S. productivity has increased at a remarkably steady rate since the 1950s, meaning we keep getting better at getting more value out of our labor, equipment, and raw materials. From 1950 to the mid-’70s, average compensation kept pace with productivity, meaning the benefits of productivity gains went to those doing the work.

Since then, productivity and wages have decoupled. The value of our output has kept climbing, but the compensation of our workers has stopped reflecting it. Between 1973 and 2014, net productivity grew 72%, but hourly worker compensation grew just 9%. This left worker compensation at less than half what it would have been if the two had stayed in line. In other words, our nation kept winning, but our workers only got to cash in half their chips. The money started going somewhere else.

07

Productivity Relative to Hourly Compensation

Indexed to 1948

Sources: Bureau of Economic Analysis, Bureau of Labor Statistics, Economic Policy Institute.

Note: Productivity equals net output for U.S. goods and services minus depreciation, per hour worked. Hourly compensation is inflation-adjusted and accounts for U.S. non-management workers.