Ex-White House economic adviser finds 'lost' link between productivity and wages
- Harvard University economist Lawrence Summers and doctoral student Anna Stansbury co-authored a study they claim shows a link between productivity and wages, The Wall Street Journal (WSJ) reports. Their findings conflict with the idea that the widening gap between productivity and wages constitutes income inequality.
- The study found that every one percentage point of productivity growth in the period between 1973 to 2005 led to a 0.5-to-one percentage point of growth in average or medium pay — depending on the industry. Summers argues rising productivity would make American workers across the board better off in the long run.
- According to WSJ, U.S. productivity and wages moved in tandem from the end of World War II until 1973, when productivity continued rising but wages plateaued. A gap between both factors grew so wide that by 2015, productivity was up by 73%, but wages rose by only 12%.
Workers can expect wages to remain flat in 2018, despite how hard they work. An Aon study released in September forecasts an average wage increase of 3.0%, up slightly from 2017's 2.9%. Even people expecting sizable bonuses this year will likely be disappointed next year; Aon says employers plan to spend 12.5% of payroll on bonuses in 2018, the lowest level since 2010.
A Willis Towers Watson (WTW) study shows similar results. In 2018, average wage growth for exempt workers, including managers, is forecast to be 3.0%. High-performers should expect average increases of 4.5%; average performers, 2.6%; and below-average performers, 1.0%.
HR managers in organizations with many low-paid workers might note these wage projections. Low-paying jobs often require high levels of physical labor and equally high turnover rates. Industries with high turnover can expect problems with retention to continue as long as wages remain stagnant. Also, many low-wage workers hold multiple jobs to meet living expenses. The question is whether high productivity among the lowest paid workers is better for them than a higher living wage.
The wage-growth measurement from Summers doesn't seem to address the whole picture of employee compensation — namely benefits — though the paper does acknowledge benefits' role in attracting talent. Employers that can afford the task are dealing with healthcare cost increases as drug prices continue to rise and treatment for critical illness becomes more expensive. Some are even helping workers take on their student debt, seeing a business case for improving workers' financial health.