a column by Henrique Basso and Juan F Jimeno for VOX: CEPR’s Policy Portal
Advanced economies will face large demographic and radical technological change in the next decades.
This column shows how demographics and endogenous technological changes, which encompass both innovation and automation, can interact to limit the future prospects for growth and alter the factor income distribution. Due to a trade-off between innovation and automation, lower fertility and population ageing are likely to generate more automation, but also lead to a reduction in GDP per capita growth and the labour income share.
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Showing posts with label labour_income_share. Show all posts
Showing posts with label labour_income_share. Show all posts
Thursday, 5 December 2019
Monday, 6 August 2012
Decoupling of Wage Growth and Productivity Growth? Myth and Reality
a research paper by João Paulo Pessoa (Centre for Economic Performance, London School of Economics) and John Van Reenen (Centre for Economic Performance, London School of Economics, NBER and CEPR) published by the Resolution Foundation
Abstract
It is widely believed that in the US wage growth has fallen massively behind productivity growth. Recently, it has also been suggested that the UK is starting to follow the same path.
Analysts point to the much faster growth of GDP per hour than median wages. We distinguish between “net decoupling” – the difference in growth of GDP per hour deflated by the GDP deflator and average compensation deflated by the same index – and “gross decoupling” – the difference in growth of GDP per hour deflated by the GDP deflator and median wages deflated by a measure of consumer price inflation (CPI).
We would expect that over the long‐run real compensation growth deflated by the producer price (the labour costs that employers face) should track real labour productivity growth (value added per hour), so net decoupling should only occur if labour’s share falls as a proportion of gross GDP, something that rarely happens over sustained periods.
We show that over the past 40 years there is almost no net decoupling in the UK, although there is evidence of substantial gross decoupling in the US and, to a lesser extent, in the UK. This difference between gross and net decoupling can be accounted for essentially by three factors (i) wage inequality (which means the average wage is growing faster than the median wage), (ii) the wedge between compensation (which includes employer‐provided benefits like pensions and health insurance) and wages which do not and (iii) differences in the GDP deflator and the consumer price deflator (i.e. producer wages and consumption wages).
These three factors explain basically ALL of the gross decoupling leaving only a small amount of “net decoupling”. The first two factors are important in both countries, whereas the difference in price deflators is only important in the US.
Abstract
It is widely believed that in the US wage growth has fallen massively behind productivity growth. Recently, it has also been suggested that the UK is starting to follow the same path.
Analysts point to the much faster growth of GDP per hour than median wages. We distinguish between “net decoupling” – the difference in growth of GDP per hour deflated by the GDP deflator and average compensation deflated by the same index – and “gross decoupling” – the difference in growth of GDP per hour deflated by the GDP deflator and median wages deflated by a measure of consumer price inflation (CPI).
We would expect that over the long‐run real compensation growth deflated by the producer price (the labour costs that employers face) should track real labour productivity growth (value added per hour), so net decoupling should only occur if labour’s share falls as a proportion of gross GDP, something that rarely happens over sustained periods.
We show that over the past 40 years there is almost no net decoupling in the UK, although there is evidence of substantial gross decoupling in the US and, to a lesser extent, in the UK. This difference between gross and net decoupling can be accounted for essentially by three factors (i) wage inequality (which means the average wage is growing faster than the median wage), (ii) the wedge between compensation (which includes employer‐provided benefits like pensions and health insurance) and wages which do not and (iii) differences in the GDP deflator and the consumer price deflator (i.e. producer wages and consumption wages).
These three factors explain basically ALL of the gross decoupling leaving only a small amount of “net decoupling”. The first two factors are important in both countries, whereas the difference in price deflators is only important in the US.
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