Productivity and real wages over time

Real wages are the most direct mechanism through which the benefits of economic growth, and therefore, productivity gains are transferred to workers. Employers’ ability to raise wages and other forms of labour compensation is greatly dependent on increases in labour productivity.

Key findings

Decline in labour income shares observed in most countries can be reformulated as a decoupling between growth in labour productivity and real labour compensation, when labour compensation costs are adjusted for inflation using the same price index applied to deflate value added (and so productivity). The impact of a decoupling on material well-being is further exacerbated given the widespread slowdown in productivity growth and even more so when real labour compensation is adjusted for inflation using the consumer price index – i.e. from a consumer/worker perspective – as changes in value-added inflation and general inflation can differ significantly.

Definition

The labour component of income earned by the self-employed is not separately identifiable, as such it is assumed that the self-employed and employees earn the same average hourly compensation for their labour, with total labour compensation calculated as compensation of employees multiplied by the number of hours worked by all persons (employees and self-employed), divided by the hours worked by employees. For Korea, as total hours worked by employees are not available, the number of persons employed and employees are used to compile labour productivity and compensation per employee in Figure 6.6.

Real measures of compensation can be calculated from the a producer’s perspective, where real average hourly labour compensation growth is deflated using the same price index as that used for value added, or from a worker’s perspective, where compensation is adjusted for general price inflation (in this case the consumer price index, CPI), which is a better reflection of the real purchasing power of households and so more appropriate for analyses of material well-being and inequalities (OECD, 2017).

Comparability

Total labour income represents the compensation received by both employees and self-employed for their labour. The compensation received by employees is readily available in the national accounts. However, total income received by the self-employed is recorded only as mixed income, with no distinction between the returns on their labour and the returns on their capital. Therefore, as described above, self-employed labour compensation is necessarily imputed. These imputations assume that either the average labour compensation per hour worked by the self-employed and employees or the average labour compensation per self-employed and per employee is the same, within a given sector. To what extent these assumptions (and in particular the latter) are true is likely to differ across countries.

References

OECD National Accounts Statistics (database), http://dx.doi.org/10.1787/na-data-en.

OECD Productivity Statistics (database), http://dx.doi.org/10.1787/pdtvy-data-en.

OECD (2017), OECD Compendium of Productivity Indicators 2017, OECD Publishing, Paris, http://dx.doi.org/10.1787/pdtvy-2017-en.

Figure 6.5. Labour productivity and average labour compensation per hour, total economy
Selected OECD countries, GVA per hour worked and average hourly labour compensation, indices 1995=100
Figure 6.5. Labour productivity and average labour compensation per hour, total economyFigure 6.5. Labour productivity and average labour compensation per hour, total economy

 StatLink http://dx.doi.org/10.1787/888933969219

Figure 6.6. Growth in labour productivity and average labour compensation per hour, total economy, 2010-2017
Percentage change at annual rate
Figure 6.6. Growth in labour productivity and average labour compensation per hour, total economy, 2010-2017

 StatLink http://dx.doi.org/10.1787/888933969238

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