The Wages and Productivity Debate

Interesting post here by James Tankersley on a study conducted by James Sherk, a senior policy analyst at the Heritage Foundation on the perceived wage/productivity gap. Sherk argues that total compensation (not just wages), if properly adjusted for inflation, has actually kept pace with productivity over the last 40 years, even wages have haven’t grown much since the 1970s.

Sherk argues that you have to take into account the growing share of compensation going to health care benefits—not just wages—and then makes some seemingly valid adjustments to the way productivity is measured and how inflation should be tracked for real wages and output. This results in what appears to be a much smaller gap between productivity and pay.

Tankersley writes:

The real problem, [Sherk] says, is that far too many workers are stuck in low-productivity jobs, particularly in the health-care sector; he argues policymakers should be focused on helping those workers gain more skills and move into more productive sectors — specifically, by looking for ways to reduce the cost and increase the accessibility of higher education. (my emphasis)

According to Tankersley, Sherk blames market forces for pushing lower-skilled workers into low-productivity jobs: “If those workers could more easily and cheaply gain more skills — say, through widely available, low-cost online education — they could compete for higher-productivity jobs.”

But this points again to an issue I’ve never been able to figure out (actually two issues, but I’m going to put aside my question about how to best measure productivity among health care workers*):

If everyone currently in a low-skilled/low pay job was to gain the skills they need to move out of those jobs and into a better one (this assumes, of course, that enough of those better jobs are actually out there), in most cases we’ll still need people to do those low-skilled jobs. This is particularly true in the health care sector that Sherk cites here, where the demand for low-skilled workers, like home health aids, is pretty high. Training people out of low-skilled jobs doesn’t eliminate the low-skilled jobs. I just think at some point you’ve got to address wages at the low end even as we expand education and training opportunities for those workers. (And as I’ve argued before, raising wages probably increases the likelihood that people in those low skilled jobs can take advantage of the education and training opportunities that are available.)

Anyway, for those who find Sherk’s research compelling, I’d suggest checking out Dean Baker’s response to Tankersley’s post, in which he essentially agrees that, yes, the problem has been not so much a wage/productivity gap, but an “upward redistribution from middle and lower income workers to those at the top, doctors, lawyers, and especially Wall Street types and CEOs.” He also argues that a wage/productivity gap does appear to have emerged in the years since the crash.

None of this suggests that low wages aren’t a problem. There’s some really good data, for example, in this post by Janelle Jones and John Schmitt at CEPR that shows how the minimum wage has lagged behind inflation. And in this post, Felix Salmon makes about as cogent argument in favor of raising the minimum wage I’ve ever read. His point about how the government essentially subsidizes companies that pay lousy wages is a good one, especially in light of the living wage controversy here in the District.

*I’m also ignoring Sherk’s obligatory plug for online learning.