Wages Aren’t Keeping Up with Economic Growth

June 30, 2015
wages and gdp

Wage growth hasn’t kept pace with per capita gross domestic product (GDP) growth over the past few decades, according to a recent Economic Synopses essay.

Senior Economist YiLi Chien and Senior Research Associate Maria A. Arias compared GDP data from the National Income and Product Accounts (NIPA) with two hourly wage data series since 1972:

  • One from the Bureau of Labor Statistics establishment survey, which reports the average hourly wage for all nonsupervisory workers
  • One that divided the total wages and salaries reported in NIPA by the total hours worked from the establishment survey, which covered all workers including supervisory workers

They also converted the nominal data into real (inflation-adjusted) data using the personal consumption expenditures price index.

Chien and Arias found that the growth rate of hourly wages consistently lagged behind per capita GDP growth for the period studied. During this period, the real hourly wage rate increased only 17 percent for nonsupervisory workers and 46 percent for all workers, while per capita GDP nearly doubled. The authors pointed out that the difference between the two wage series indicated that wage growth was stronger for supervisory workers. They wrote, “This finding is consistent with the empirical finding that high-wage earners account for most of the wage growth.”

The authors gave two reasons that the wage growth rate lagged behind per capita GDP growth:

Growth Rates of Hours and Population

The average growth rates of total hours worked and the population in the sample period were 1.31 percent and 0.99 percent, respectively. The authors noted, “Therefore, the hourly wage growth is slower than per capita GDP growth.”

Growth Rates of Total GDP and Real Wages

Average total real GDP grew at a rate of 2.59 percent, while average total real wages grew at a rate of 2.21 percent. The authors noted, “Given that total GDP is divided between laborers and capital owners, this fact suggests that a higher share of income went to capital owners over time.”

Chien and Arias concluded that wages haven’t kept pace with economic growth. They wrote, “If this trend continues, strong real wage growth may not occur even if economic conditions improve.”

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