Productivity Growth and Real Wages - Essay Example

Essay In any nation it is the right of every worker to enjoy the fruits of his labor. That is why there is such a close relationship between productivity and workers wages in a country. An increase in the wages happens only when the productivity or the output per person in the nonfarm business sector increases 2, 3. The gap between productivity growth and the wages of workers is at an all time high. When the workers wages are compared to that of productivity growth, which has been quite strong in the past but is seeing a slight downfall as of now, it reflects an unequal trend.

The common man is actually not getting the benefits from the productivity growth 1. An appreciable rise in both productivity and wage structure was witnessed through the 1950s and 1960s, which slowed down in the 70s and 80s 5. However, the 1990’s saw a good and steady rise in productivity and therefore the benefits of the growth were seen by the increase in the wages 1. In the US, the real wage growth was weak in the early 1990s, but it rose from 1994, in response to the accelerating productivity, up to 2004 after which it showed a downward trend mainly attributed to increasing energy costs 3.

The recession witnessed in the early 2000s resulted in a downward trend with respect to wages, even though the productivity was high 1. According to a report the median real wages for all workers increased by 1.4% per year between 1995 and 2003, which was less than half the rate of productivity growth 2. Another news article published in a website quotes a 2% decline in the median hourly wages for American workers since 2003, despite the steady rise in productivity 5.This inequality in wage distribution can be attributed chiefly to the bargaining power of workers in case of high productivity.

Employee unions play a vital role this bargain. However, the workers ability to bargain has considerable diminished, thus preventing them from enjoying the fruits of their own labor 1. Some reasons cited for this reduced bargaining power include global trade, immigration, layoffs and technology 5. Inflation shares an inverse relationship with wage distribution and so does fringe benefits such as health care 1, 5. Education status and working skills of workers also plays a vital role in determining the wages 4.

Another point made is that only the top 10% enjoyed the real benefits of productivity growth leaving the rest of the 90% with very less growth in terms of wages 3, 4.According to the Baumols Law, mobility in labor will result in an increase in wages so that the sectors having below-average productivity will experience an increase in wage growth irrespective of the productivity 2. In addition full employment will also be an essential factor that will contribute to higher productivity and hence increased wages 1.

A more affordable health care policy devised by governments would also contribute to better wage distribution 5. Hence a gradual change in all the above would help workers enjoy the benefits of the nation’s productivity growth and would help overcome the inequality in wage distribution. Reference:1. Bernstein, Mishel. L. Economy’s Gains fail to reach most workers paychecks. Economic Policy Institute. 3 Sep. 2007. Viewed 26 August 2008. 2. Becker, Robert J Gordon. Where did the productivity growth go?

Inflation Dynamics and the Distribution of In come. October 27, 2005. Viewed 24 August 2008. 3. Bailey, Robert Z.Lawrence. Competitiveness and the Assessment of trade Performance. Peterson Institute for International Economics. 215-241. Viewed 26 August 2008.4. Goldin, Lawrence F. Katz. Long-run Changes in the Wage Structure: Narrowing, Widening, Polarizing. Brookings Paper on Economic Activity, 2. 2007. 135-165. Viewed 26 August 2008.5. Greenhouse, David Leonhardt. Real Wages Fail to Match a Rise in Productivity.

The New York Times. 28 August 2006. Viewed 24 August 2008. http://www.nytimes.com/2006/08/28/business/28wages.html?_r=1&adxnnl=1&adxnnlx=1219742016-CmofwykvEC/YjqReJNjA2A&oref=slogin