Figure A Using publicly available pay and productivity data obscures rising inequality : Nonfarm business productivity and hourly compensation, — Source: Bureau of Labor Statistics nonfarm business sector productivity and costs data. Specifically, in this graph, there is a gap between productivity and pay but the overwhelming share of it is a statistical artifact of using different price deflators for the two series.
Below, we walk through how this chart can be adjusted in steps to make the figure that shows the inequality driving the wedge between productivity and pay. Our first adjustment to the NFB-based graph is to broaden our productivity measure from the nonfarm business sector to encompass the entire economy.
This measure of economywide productivity is calculated by using the unpublished but available upon request total economy productivity TEP series tracked by the BLS. Because sectors outside the nonfarm business sector government, in particular tend to see slower productivity growth, this first adjustment Figure B slightly reduces the pace of productivity growth since Figure B Broadening our measure of productivity from the nonfarm business sector to the total economy reduces productivity growth : Nonfarm business productivity, total economy productivity, and hourly compensation,— Our second adjustment to the productivity data Figure C corrects for the influence of depreciation—converting the series from a gross measure of productivity to a net measure.
We do this by multiplying the TEP productivity index in each year by the ratio of gross to net domestic product. Figure C Accounting for depreciation further reduces measured productivity growth : Nonfarm business productivity, total economy productivity, and hourly compensation, — Note: All four lines are indices set to in To generate net productivity growth, real output per hour for the total economy is multiplied by the ratio of net domestic product to gross domestic product in all years to account for depreciation.
Our final adjustment to productivity is to replace the output deflator used to inflation-adjust the BLS productivity measures with a consumption deflator. To do this, we retrieve nominal values of productivity by reflating the productivity index by the net domestic product deflator. The results are shown in Figure D.
Note: All five lines are indices set to in The first adjustment we make to the NFB pay series or average real hourly compensation is to replace it with a measure of hourly earnings of production and nonsupervisory workers. Rising inequality drives a large wedge between growth in average pay and pay for the vast majority and, by definition, one can never fully examine what has happened to trends in inequality by looking at averages huge gains at the top pull the average upward.
Figure E shows that the effect of this adjustment is dramatic. This is in contrast with inequality arising when more and more of income generated economywide accrues to the owners of capital and less and less to the labor force overall. While there has been a significant shift of income away from labor and toward capital in recent decades, this shift has had a far smaller effect on the pay — productivity gap than has rising inequality within wage earner s.
This can be seen in the figures below—the gap between average hourly compensation and the effective total economy productivity line is far smaller than the gap between nonsupervisory hourly wages and effective total economy productivity. Wage inequality has grown radically since Probably the starkest representation of this radical growth in wage inequality can be seen in the stratospheric rise in the ratio of the pay of CEOs and other top corporate executives relative to typical workers in their industry.
Figure E Comparing productivity to typical worker pay reveals the extent of inequality hidden by average pay trends : Nonfarm business productivity, total economy productivity, hourly compensation, and nonsupervisory wages — Note: All six lines are indices set to in Our second pay adjustment accounts for trends in nonwage compensation.
If the value of health care and other nonwage benefits provided by employers grew more rapidly than wages, then looking only at hourly earnings could disguise how rising productivity may have boosted living standards for the vast majority. As Figure F shows, o nce we account for the value of benefits including the effect of rapid inflation in health care , one sees that the overall trends are not materially changed.
Perhaps surprisingly , the era that saw measures of total compensation rise noticeably faster than wages is the era before Note: All seven lines are indices set to in The ratio of economywide compensation to wage and salary income is multiplied by the average hourly earnings line to yield a measure of total compensation, not just wages, for nonsupervisory workers. However, since researchers and analysts may still be interested in factors that account for various parts of the wedge between our measure of pay and other measures of productivity, we decompose these gaps further.
To be clear, this portion was the large majority of the gap. And when we wanted to assess something specific to the rise in inequality associated with this gap like in this paper , we focused only on the portion of the gap that was indeed associated with rising inequality.
But the fact that some portion of the gap was attributable to other factors let critics muddy the waters by diverting attention from the very real role of inequality. The rows displaying the share of the gap between median hourly compensation and net effective productivity divide this contribution by the total gap.
The Productivity—Pay Gap. Share Tweet. Updated August Most Americans believe that a rising tide should lift all boats—that as the economy expands, everybody should reap the rewards. This outcome can be guaranteed by smart and compassionate policy choices or subverted by policymakers choosing a different path. Chart Data Download data The data below can be saved or copied directly into Excel.
The data underlying the figure. Share on Facebook Tweet this chart. Copy the code below to embed this chart on your website. There were roughly 76, average new daily infections as of Oct. Older adults are at higher risk of severe illness and death from Covid. They may have opted to start drawing Social Security and live off their nest egg instead of taking a risk at work, economists said. Grandparents may have also offered to watch their grandkids and ease childcare duties for working parents.
Compared to two years ago, there were 3. Bureau of Labor Statistics data. Care responsibilities have made it tough for some workers — especially those who can't work from home — to come off the sidelines.
For example, many schools reopened for in-person learning for the new academic year, helping ease childcare constraints for parents. But Covid outbreaks have led to sporadic quarantine periods that may stress parents' ability to hold or commit to a steady job.
Further, in September, there were 1. Census Bureau's Household Pulse Survey. Further, there were , more people who said they were mainly not working due to care for an elderly person, Sojourner said. Households across the income scale have been able to amass higher savings relative to pre-pandemic levels.
The federal government sent large amounts of cash to families to combat the Covid-fueled downturn, including stimulus checks, enhanced unemployment benefits and increased food-stamp benefits. Lawmakers also offered temporary relief to renters, homeowners and student-loan borrowers. Families may have also spent less money with certain entertainment and other venues closed during the crisis.
But that extra cash may not last long, perhaps pushing workers who deplete savings back to work. There may be near-record job openings — but that doesn't necessarily mean businesses are paying a wage workers will accept. The Bureau attributes the upward pressure on earnings to a rising demand for labor. But that higher pay may still not be enough to attract workers from the sidelines, Sojourner said.
In the U. And across all sectors of the economy, historical inequities continue to drive down wages and economic mobility of female, Black, and Hispanic workers. Data gathering can help determine whether progress toward these challenges, captured in these metrics, also leads to cost savings in hiring, retention, and overall performance.
This way, progress at the firm level can also lead toward greater shared prosperity; the metrics below are a first step in that direction. In the last decades, low wage work has become increasingly pervasive and precarious, and at the same time stagnant wages have left many full-time workers unable to afford basic living expenses, forcing them to work multiple jobs.
Many have little cushion for emergencies, leading to constant churn and short job tenures. To track their social impact on job quality, companies can measure the share of their workforce paid living wages and with healthcare.
The living wage depends on the cost of housing, health insurance, childcare, and other necessities. Likewise, unexpected health-related expenses can spell disaster for uninsured workers. Healthcare is an important component of job quality as it promotes stability and facilitates mobility.
Nine percent of workers in did not have health insurance. Improving wages may seem like an intractable proposition in tight margin industries. Other companies are experimenting with profit sharing agreements for employees across the wage spectrum. Whatever the strategy, and despite perceived limited flexibility when it comes to wages, measuring outcomes can help identify strategies for progress that also make business sense.
What percent of workers earn a living wage, as defined by their geographical location? Many low-wage workers churn from one low-wage job to the next, seeing little wage growth. Internal promotions are not the only way workers move up. The organizational structure of a company may make it impractical to expect every frontline worker be able to move up internally.
This will be increasingly the case as firms outsource low-wage work to contract firms that can offer little mobility to their workers. Companies that help low-wage workers transition to higher wages even when they leave the company can also make a company more attractive to prospective employees. Companies can improve mobility rates by paying higher wages, offering training opportunities and unlocking barriers to more promising jobs.
Rapidly churning through jobs makes it difficult for workers to accumulate the know-how required for experience to translate to better opportunities. Rapid churn also makes workers expensive to companies. What percentage of your lowest paid workers left before the one-year mark? How many left before the two year mark? Gender and racial inequities appear in both the share of workers in high-quality, high-paying jobs and in the share of workers who see economic mobility.
Many companies have set representation goals for themselves for diversity at the board and different levels of the organization. But they often find themselves competing for a small pool of diverse talent within their company. Using the right metrics can help by breaking down the problem to look at the talent building process.
For example, to unlock diversity at the top, managers may want to look at mobility rates in their company across demographics.
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