Prosperity Watch (Issue 53, No. 2)

September 9, 2015

For most of the past century, American workers and businesses saw hard work pay off—as workers increased their efficiency and their use of technology, they also increased the quantity and value of the goods they produced, generating additional profits for employers and higher wages for workers. Beginning in the 1970s that connection between productivity and wages frayed and the norm for workers in the 21st century is now quite different.

In this year’s State of Working North Carolina report, we highlight how compensation has fallen significantly behind productivity gains in the years since the Great Recession.

Since 1979, the median worker in North Carolina has seen their compensation increase by 22 percent while they have become four times more productive over the same period. From 2009 to 2013, productivity or the output per worker has increased by 3 percent while the median wage adjusted for inflation has declined by 7 percent. These more recent trends stand in stark contrast to the earlier post-war period. Instead of rewarding hard work with higher wages, or investing in capital improvements that could reap additional productivity and wage gains for the future, employers are treating their workers differently than in past recoveries—choosing to keep the savings generated by productivity gains in cash reserves, or as profits distributed to shareholders.

The wedge between compensation and productivity is, in part, a result of the failure of public policies to ensure that workers can share in the benefits of a growing economy and their increased capacity to produce goods and services.  The result is that the economy as a whole has fewer consumers to purchase goods and services and the entire state is held back from a full recovery.