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Real Compensation has Risen With Productivity

 June 19, 2008 02:00 PM


It is a commonly held view that the American worker has not shared in the phenomenal economic growth since the late 1970s, and data like the chart below are often cited to show that median household income is falling farther and farther behind gains in productivity:



But the Heritage Foundation's James Sherk reminds us that "Wages are only part of what workers earn. Benefits, such as health coverage, 401(k) plans, and paid sick leave are an increasingly large part of workers' earnings.

Economic theory says that companies will raise workers' earnings when their productivity rises, but it does not say that those increased earnings will take the form of cash wages. The correct comparison is between productivity growth and workers' total compensation, including benefits, not just the cash wages portion of that compensation.

The chart below shows such a comparison. Over the past forty years compensation per hour and output per hour—that is, productivity—have moved almost in unison. Productivity rose 110% since 1968, and total compensation rose 103%.

Q.E.D.

[Related -Qihoo 360 Technology Co Ltd. (QIHU) Q2 Earnings Preview: A Green Monday]

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Thanks to Travis Walker for the pointer.

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