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The Decoupling of Median Wages from Productivity in OECD Countries

Author

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  • Cyrille Schwellnus
  • Andreas Kappeler
  • Pierre-Alain Pionnier

Abstract

Over the past two decades, aggregate labour productivity growth in most OECD countries has decoupled from real median compensation growth, implying that increasing productivity is no longer sufficient to raise real wages for the typical worker. This article provides a quantitative description of decoupling in OECD countries over the past two decades, with the results suggesting that it is explained by declines in both labour shares and the ratio of median to average wages (a partial measure of wage inequality). Labour shares have declined in about two thirds of the OECD countries covered by the analysis. However, the contribution of labour shares to decoupling is smaller if sectors are excluded for which labour shares are driven by changes in commodity and asset prices (primary and housing sectors) or by imputation choices (non-market sectors). The ratio of median to average wages has declined in all but two of the OECD countries covered by the analysis and appears to reflect disproportionate wage growth at the very top of the wage distribution rather than stagnating median wages. The causes of these developments will be analysed in follow-up research.

Suggested Citation

  • Cyrille Schwellnus & Andreas Kappeler & Pierre-Alain Pionnier, 2017. "The Decoupling of Median Wages from Productivity in OECD Countries," International Productivity Monitor, Centre for the Study of Living Standards, vol. 32, pages 44-60, Spring.
  • Handle: RePEc:sls:ipmsls:v:32:y:2017:3
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    3. Walter Paternesi Meloni & Antonella Stirati, 2021. "What has driven the delinking of wages from productivity? A political economy-based investigation for high-income economies," Working Papers PKWP2104, Post Keynesian Economics Society (PKES).
    4. Mondolo, Jasmine, 2020. "Macro and microeconomic evidence on investment, factor shares, firm and labor dynamics in Italy and in Trentino," MPRA Paper 99138, University Library of Munich, Germany.
    5. Giovanni Dosi & Richard B. Freeman & Marcelo C. Pereira & Andrea Roventini & Maria Enrica Virgillito, 2020. "The Impact of Deunionization on the Growth and Dispersion of Productivity and Pay," Documents de Travail de l'OFCE 2020-05, Observatoire Francais des Conjonctures Economiques (OFCE).
    6. Dawid, H. & Harting, P. & Neugart, M., 2018. "Cohesion policy and inequality dynamics: Insights from a heterogeneous agents macroeconomic model," Journal of Economic Behavior & Organization, Elsevier, vol. 150(C), pages 220-255.
    7. Hornbeck, Richard & Moretti, Enrico, 2019. "Estimating Who Benefits from Productivity Growth: Direct and Indirect Effects of City Manufacturing TFP Growth on Wages, Rents, and Inequality," IZA Discussion Papers 12277, Institute of Labor Economics (IZA).
    8. Andrew Sharpe & James Uguccioni, 2017. "Decomposing the Productivity Wage Nexus in Selected OECD Countries, 1986-2013," International Productivity Monitor, Centre for the Study of Living Standards, vol. 32, pages 25-43, Spring.
    9. Orsetta Causa & Anna Vindics & Oguzhan Akgun, 2018. "An empirical investigation on the drivers of income redistribution across OECD countries," OECD Economics Department Working Papers 1488, OECD Publishing.
    10. Hornbeck, Richard & Moretti, Enrico, 2018. "Who Benefits From Productivity Growth? Direct and Indirect Effects of Local TFP Growth on Wages, Rents, and Inequality," CEPR Discussion Papers 12953, C.E.P.R. Discussion Papers.
    11. Dosi, Giovanni & Virgillito, Maria Enrica & Yu, Xiaodan, 2020. "The wage-productivity nexus in the world factory economy," World Development, Elsevier, vol. 129(C).
    12. N. Cordemans, 2019. "Inclusive growth: a new societal paradigm?," Economic Review, National Bank of Belgium, issue i, pages 29-50, June.
    13. Lawless, Martina & Rehill, Mark, 2020. "Productivity dispersion and sectoral labour shares in Europe," Papers WP659, Economic and Social Research Institute (ESRI).
    14. Grande, Rafael & Muñoz de Bustillo, Rafael & Fernández Macías, Enrique & Antón, José Ignacio, 2020. "Innovation and job quality. A firm-level exploration," Structural Change and Economic Dynamics, Elsevier, vol. 54(C), pages 130-142.
    15. María Angélica Arbeláez & Alejandro Becerra & Miguel Benítez, 2021. "Contribución fiscal y tributación efectiva de la industria manufacturera en Colombia," Informes de Investigación 019143, Fedesarrollo.
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    17. Anna M. Stansbury & Lawrence H. Summers, 2017. "Productivity and Pay: Is the link broken?," NBER Working Papers 24165, National Bureau of Economic Research, Inc.
    18. Kiss, Aron & Van Herck, Kristine, 2019. "Short-Term and Long-Term Determinants of Moderate Wage Growth in the EU," IZA Policy Papers 144, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    Productivity; OECD; Policies; Global Productivity; Total Factor Productivity; Wages; academics; Wage inequality; Median Wages;
    All these keywords.

    JEL classification:

    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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