Newspaper article The Christian Science Monitor

Productivity, Profits & Paychecks

Newspaper article The Christian Science Monitor

Productivity, Profits & Paychecks

Article excerpt

TODAY'S headlines suggest an alarming paradox in the American economy: While productivity and profits are soaring, paychecks are shrinking. This emerging trend, however, is based on simplistic interpretations of flawed facts that paint a compelling - but inaccurate - picture of the economic landscape. The truth is more complicated - and more positive.

Higher productivity leads to economic growth. Increasing productivity and profits boosts employee paychecks. There is a strong, historical connection between productivity and compensation growth. Alarm bells about a rupture in the link between productivity and pay are premature. An evaluation of data shows that productivity and compensation move together over time.

Pundits are often guilty of presenting data without a clear understanding of their reliability, measurements, or adjustments. For example, reports examining productivity and compensation often use two different measures of inflation to obtain real comparisons.

Current accounts suggest that labor's share of national income is getting smaller, while corporate profits are gobbling up a bigger share. In fact, just the opposite is true. Compensation as a percent of national income has increased over time. What has changed is the mix of the total compensation package. Wages as a percent of national income have fallen, but nonwage compensation, including health care, retirement, and Social Security benefits, has increased.

Concern that companies are failing to share their profits with workers is misplaced. A look back at corporate profits shows how erratic they have been over the past 30 years. While they have recovered in the 1990s, profits do not represent an increasing share of national income. Conventional measures of pay focus only on wages, or salaries, and not on the total compensation package. Real compensation per hour in the nonfarm business sector rose by just 0.1 percent from 1993-94 using the Consumer Price Index-U (CPI-U). A broader measure of inflation produces a different picture of wage growth from 1993-94. …

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