For most of the past century, American workers and businesses saw hard work pay off—as workers increased their efficiency, they also increased the quantity and value of the goods they produced, generating additional profits for the employer and higher wages for workers. Beginning in the 1970s that connection between productivity and wages frayed, and the norm for workers in the 21st century has now become quite different. In fact, wages have fallen significantly behind productivity gains in the years since the Great Recession.
In contrast to the recoveries from the 1991 recession and the 2001 recession, both of which saw productivity gains accompanied by wage increases, workers in the current recovery have seen their productivity increases rewarded by a sharp decrease in wages since the end of the recession. As indicated by the chart, output per worker, as measured by the state’s share of real Gross Domestic Product, has increased dramatically over the period between the formal end of the recession in June 2009—the so-called “trough” of the business cycle—and the end of 2012, 42 months into the recovery. Over the same period, however, inflation-adjusted wages (in 2012 dollars) have either stagnated or fallen, suggesting that workers are not being rewarded for their more efficient work and increased output.
This stands in stark contrast to previous recoveries. In the recovery from the 1991 recession, productivity exploded, seeing 7.4 percent gains over the same 42 month period from the end of the recession—likely due to a historically unique transition to computerization and the birth of the Internet—while wages saw a 3.5 percent gain. Similarly, workers in the 2007 recession increased their productivity by 6.4 percent after the 2011 recession, and saw relatively stagnant 0.7 percent wage growth over the same 42 month period. Meanwhile, workers in the current recovery have seen productivity gains of 3.3 percent coupled with a catastrophic 5.3 percent drop in their wages, despite their improvements in output and efficiency. This suggests that employers are treating their workers differently than in past recoveries—choosing to keep the savings generated by productivity gains in cash reserves, or as profits distributed to shareholders— instead of rewarding hard work with higher wages, or investing in capital improvements that could reap additional productivity and wage gains for the future.