Number 41, Fall 2021 with Symposium on the Decoupling of Productivity and Pay
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The Monitor publishes high-quality peer-reviewed articles on productivity issues, trends and developments in Canada, the United Kingdom and other countries and serves as a vehicle for the international discussion of productivity topics. We do not charge submission fees for these articles. Print and online versions are published twice a year in English. The articles are largely nontechnical in nature and understandable to a wide audience of productivity researchers and analysts as well as the general public. The publication is distributed electronically to anyone interested in productivity issues on a complimentary basis.
The articles can be accessed as of Friday, 17 December 2021.
Number 41, Fall 2021
- Editor’s Overview – Andrew Sharpe and Bart van Ark
- Table of Contents
- Full text
- Inside Back Cover With CSLA And TPI acknowledgements
Symposium on the Decoupling of Productivity and Pay in the United States, the United Kingdom and Canada
Productivity and Pay in the United States and Canada Jacob Greenspon, Anna Stansbury and Lawrence H. Summers
This paper studies the productivity-pay relationship in the United States and Canada along two dimensions. The first is divergence: the degree to which productivity has grown faster than pay. The second is delinkage: the degree to which incremental increases in the rate of productivity growth translate into incremental increases in the rate of growth of pay, holding all else equal. Overall, the findings lead to tentatively conclude that policies or trends which lead to incremental increases in productivity growth, particularly in large relatively closed economies like the USA, will tend to raise middle class incomes. At the same time, other factors orthogonal (i.e. statistically independent) to productivity growth have been driving productivity and typical pay further apart, emphasizing that much of the evolution in middle class living standards will depend on measures bearing on relative incomes.
Have Productivity and Pay Decoupled in the UK? Andreas Teichgräber and John Van Reenen
In the long-run at the macro level, the growth in real pay of workers tends to follow that of labour productivity. In recent years, however, there have been concerns that this relationship has broken down and that pay has become “decoupled” from productivity, growing much more slowly, and leading to a fall in the labour share. This has been a well-documented phenomenon in the United States (US) since the early 1980s. By contrast, we show that in the United Kingdom (UK), employee mean hourly compensation has grown at the same rate as labour productivity between 1981 and 2019. However, there has been a divergence between median employee hourly wage growth and productivity growth of about 25 percentage points – meaning the typical worker has not felt much benefit, particularly if they are self-employed. PDF version of the Appendix
This article offers a narrative and supporting evidence on mechanisms that suppressed wage growth and generated a divergence of 43 percentage points (1.05 points per year) between net productivity and median hourly compensation growth between 1979 and 2017 in the United States. These dynamics reflect the strengthening of employers’ power relative to white-collar and blue-collar workers. We offer empirical assessments of the impact of particular factors on wage growth and wage inequality. The three factors with the largest and best measurement impacts, i.e., excessive unemployment, eroded collective bargaining, and corporate-driven globalization — explain 55 per cent of the divergence. Other factors — a diminished overtime salary threshold, employee misclassification, employer-imposed noncompete agreements, and corporate fissuring-subcontracting and major-buyer dominance — explain another 20 per cent. Together, these policy-related factors can account for three-fourths of the 1979-2017 divergence between productivity and median hourly compensation growth.
The Evolution of the Productivity-Median Wage Gap in Canada, 1976-2019 Andrew Sharpe and James Ashwell
The median wage is a key metric to assess developments in the standard of living of the population. Productivity gains are passed on to workers as real wage gains. But in recent decades the proportion of labour productivity gains that are being passed on to the typical or median worker has fallen in many advanced countries, a process known as decoupling. The article uses an accounting framework developed by the Centre for the Study of Living Standards to quantify the importance of the factors affecting the relationship between productivity and real median wages. It presents results for the 1976-2019 period in Canada. A key finding is that the annual gap between labour productivity growth and real hourly median wage growth fell from 1.36 percentage points per year in 1976-2000 to 0.46 points in 2000-2019. This was due to slower growth in wage inequality, the end of the decline of the labour share and an improvement in workers terms of trade. Productivity growth was relatively stable between periods. In the 1976-2000 period, the bargaining power of workers fell dramatically due to high unemployment, falling unionization rates and a rising import share. After 2000, these trends reversed or stabilized, improving the bargaining power of workers. Excel version of the appendix
Is Egypt Really More Productive than the United States? The Data Behind the Penn World Table Robert Inklaar and Pieter Woltjer
- A new feature in recent versions of the Penn World Table (PWT) is data on comparative levels of total factor productivity (TFP) across countries. TFP is defined as the efficiency with which inputs are transformed into outputs, and differences across countries can be due to factors such as better technology or better resource allocation. Yet, surprisingly, in PWT version 10.0, several countries have a TFP level well above that of the United States. In this article we discuss use the case of Egypt in 2017. PWT then reports a productivity level that is 23 per cent higher than that of the US despite having an income level of only one fifth of the US. We trace this anomalous outcome to the underlying data on comparative inputs. A fully satisfactory answer to the question in the title is elusive at this point, but the analysis highlights the data challenges that affect TFP level estimates, alongside more familiar modeling and measurement challenges.
Chaos Before Order: Productivity Patterns in U.S. Manufacturing Cindy Cunningham, Sabrina Wulff Pabilionia, Jay Stewart, Lucia Foster, Cheryl Grim, John Haltiwanger and Zoltan Wolf
- Within-industry productivity dispersion is pervasive and exhibits substantial variation across countries, industries, and time. We build on prior research that explores the hypothesis that periods of innovation are initially associated with a surge in business start-ups, followed by increased experimentation that leads to rising dispersion potentially with declining aggregate productivity growth, and then a shakeout process that results in higher productivity growth and declining productivity dispersion. Using novel detailed industry level data on total factor productivity and labour productivity dispersion from the Dispersion Statistics on Productivity dataset along with novel measures of entry rates from the Business Dynamics Statistics and productivity growth data from the Bureau of Labor Statistics for U.S. manufacturing industries, we find support for this hypothesis, especially for the high-tech industries. An increase in entry rates in a two-year period is associated with an increase in dispersion and decrease in aggregate productivity growth in two-year period t+1 and a decrease in dispersion and increase in aggregate productivity growth in two-year period t+2.
Response to Review Article by Bert Balk on Measurement of Productivity and Efficiency: Theory and Practice Robin C. Sickles and Valentin Zelenyuk
- The reading of Professor’s Balk review article (Balk, 2021) was for us quite reminiscent of the challenges we had while writing the book itself. Indeed, in the process we recognized early on that to write a good chapter for a book takes about half a year or so, and writing two such chapters roughly doubles the time (under constant returns to scale), not to mention the extra time to interconnect them. As combinatorial math tells us, the complexity of the interconnections among the chapters increases dramatically with the number of chapters. And, to be frank, our initial goal of combining the 17 chapters spanning several major fields (with many sub-fields) in the area of productivity and efficiency analysis was not achieved at the level of perfection we had hoped. In such a dynamic field one is always trying to catch up to a fast moving target of advances in theory and statistical methods. Our focus on completeness and coverage of such a broad topic as productivity and efficiency was the reason the book grew to over 800 pages, which was about double what the publisher agreed to initially. Editorial oversight required us to cut or condense some of the topics and we apologize to the readers, including Professor Balk, if something they wanted to see is not there.