Decomposing the Productivity-Wage Nexus in Selected OECD Countries, 1986-2013

Abstract

Standard economic theory predicts that in the long run, productivity growth ought to drive aggregate real wage growth. We consider this prediction in the case of 11 OECD countries, and find that eight of the 11 experienced slower median real wage growth than labour productivity growth over the 1986-2013 period. We decompose the gap between labour productivity growth and median real wage growth into four components: wage inequality, changes in the importance of employer contributions to social insurance programs, differences between the prices of output and consumption, and changes to labour's share of income. The decompositions ultimately show that there is no common cause for the productivity-wage gap, though most countries did see wage inequality grow and labour's share of income fall to some degree over our period of study.

Keywords

• wage inequality
• productivity-wage gap
• labour productivity
• oecd