Posted: Wednesday, 26 April 2006

An important paper by leading US economist Robert Gordon answers the puzzle of why wages for the majority of US workers have stagnated even as productivity (output per worker) has been rising rapidly. (Robert Gordon and Ian Dew-Becker "Where Did the Productivity Growth Go?" National Bureau of Economic Research Working Paper 11842 (http://papers.nber.org/papers/w11842.)

The paper is notable for its focus on the steep increase in the incomes of those at the very, very top of the income distribution - senior corporate executives, and athletic and entertainment "superstars." It shows the minimum real income of the top one hundredth of 1% of earners (one person in every 10,000) quadrupled to more than $3 million between 1979 and 2001. This tiny group's share of all US wages and salaries also quadrupled.

The authors show that only the top 10 % of the US work force enjoyed a growth rate of real wage and salary income equal to or above the average rate of economy-wide productivity growth. Median real wage and salary income (half of all workers earn more, and half earn less than the median) barely grew at all. In other words, fully half of the US workforce saw no increase at all in their wages despite rising productivity.

Fully half of all of the income gains went to the top 10% of workers, leaving little left over for the bottom 90%. And even within the top 10%, it was the very high income earners who did best. A sharply increased share has gone to the super elite, the top 1% and above.

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