Decoupling of wages from productivity: What implications for public policies?

Several OECD countries have been grappling not only with slow productivity growth but have additionally experienced a slowdown in real average wage growth relative to productivity growth, which has been reflected in a falling share of wages in GDP. At the same time, growth in low and middle wages has been lagging behind average wage growth, contributing to rising wage inequality. Together, these developments have resulted in the decoupling of growth in low and middle wages from growth in productivity.

Read the paper: Decoupling of wages from productivity: What implications for public policies? (pdf)

• On average across 24 OECD countries, real median wage growth has decoupled from productivity growth, but there are large differences across countries.
• Global developments in technology and trade have put downward pressure on real median wages relative to productivity, but domestic policies and institutions may explain large differences in decoupling across countries.
• There is some evidence for “winner-takes-most” dynamics as labour shares at the technological frontier have decreased and between-firm wage dispersion has increased.

• Raising  skills is key to reconnect median wages with productivity as higher skilled workers do not head-on compete with machines.
• Active labour market policies play a useful role in keeping people connected to the job market.
• Pro-competition reforms promote the sharing of productivity gains by reducing excess profits and raising real wages
• Well-designed minimum wages and employment protection can help to reduce wage inequality but risk reducing employment if set too high.

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