October 12, 2006

Why Isn't Productivity Growth Benefiting Workers?

For Immediate Release: October 12, 2006

Contact: Lynn Erskine, 202-293-5380 x115

Washington, DC: The typical worker's earnings have increased little over the last six years despite apparently rapid productivity growth, according to a report by the Center for Economic and Policy Research. "A Note on Distribution and Growth," by economist Dean Baker, provides a quick examination of key measurement issues to assess the extent to which they can explain this gap.

The report shows that there has been little change in the distribution between labor and capital in the current business cycle. While the profit share of income is up from its 2000 level, it is just now reaching the peaks it hit in 1997 (the profit peak of the last business cycle).

The report also examines the gap between productivity growth and "usable" productivity growth, which is due to the growing gap between gross and net output and the gap between the CPI and implicit price deflator used for measuring output. As a result of this growing gap, the rate of usable productivity growth is still more than 0.7 percentage points lower than in the 1960s golden age.