The Productivity-Median Compensation Gap in the United States: The Contribution of Increased Wage Inequality and the Role of Policy Choices

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 threefourths of the 1979-2017 divergence between productivity and median hourly compensation growth.