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The Productivity-Wages Dilemma

This is a problem…

Cumulative change in hourly productivity, real average hourly compensation, and median compensation, 1973–2011*


I’ve been stewing over this chart for the last couple of days, racking my brain as to how we can better ensure that workers’ wages reflect their actual output. I am not alone in this endeavor, as Lawrence Mishel, an economist, has an excellent blog post outlining his research on this phenomenon over the last twenty years.

As a sociologist, I am no stranger to the concept of alienation, popularized by Karl Marx (yes, that Karl Marx). I’m not a huge Marx fan, and generally think his solutions to problems of inequality lacked consideration of the human element. However, I think his summation of the problem of labor and wages still has merit; workers do not get paid for what they make, but instead for the time they spend working. Workers are alienated from their work because they do not directly benefit from what they produce.

I think Mishel’s work on the productivity-wage disconnect is a perfect expression of this problem. When workers are paid for “putting in their forty hours”, it is perfectly logical that, as technology makes work more efficient, those forty hours would be more profitable to employers. However, since the worker is compensated for time, rather than production, it is not surprising that increases in wages lag behind increases in productivity.

Policy-makers have attempted to fix this problem with varying degrees of wealth redistribution, minimum wage increases, and other solutions that do not address the fundamental problem of alienation; workers are paid for their time, not their labor. If we, as a society, are going to fix the gap between productivity and wages, we have to reconnect work to compensation.

How do we do this? I am a sociologist, not an economist, so I do not have a precise answer. I do have an idea for discussion. Instead of compensating time, can we not instead attach production directly to payment? This already happens in some fields. For example, freelance journalists are often paid a rate per story or per word. We could do something similar in other fields.

There are some obvious roadblocks to this. Establishing how much an individual worker’s efforts contribute to a company’s profits will take a lot of work (pun intended). Paying for hours at work is no better, though. I think most wage-workers inherently understand that what they do in an eight hour work day does not capture how much they have accomplished. Paying for productivity is a better deal for everyone. Lazy employees who drag out their tasks will receive less compensation than harder working peers, which will make it easier for employers to put their payroll to its most efficient use. For employees, working quickly and efficiently would be rewarded with more free time, helping people who work hard be able to spend more time with their families, work on personal projects, and invest in social relationships. I don’t have data for this, but those sound like things that increase overall well-being, which is something we definitely need.


*Note: Data are for compensation of production/nonsupervisory workers in the private sector and productivity of the total economy.

Source: Economic Policy Institute. Analysis from Total Economy Productivity data from the Bureau of Labor Statistics Labor Productivity and Costs program, data from the Bureau of Economic Analysis National Income and Product Accounts, and Current Population Survey Outgoing Rotation Group microdata.


October 22, 2012 · 6:27 pm