Wage-Productivity Growth Gap: An Analysis of Industry Data

The widening gap between labor productivity growth and real wage growth in the United States has attracted much attention in recent years, since they are supposed to grow in tandem according to theory. This paper provides an industrial and cross-country comparative perspective, which has been lacking so far in the literature. The results suggest that the widening of the gap between productivity growth and real wage growth was most pronounced in the US manufacturing sector, followed by Japan, whereas European economies in general tend to show smaller gaps.

Our analysis of industry origins of the wage-productivity gap in the aggregate market economy suggests that across countries, ICT goods and services and distributive services sectors are the dominant drivers of the aggregate wage-productivity growth gap. Within these industries, as well as in other industries, worsening terms of trade measured as the difference between consumer and output prices is the major contributor to the widening gap.

This working paper is complimentary.