The Great Decoupling?

One of the common memes among both the political Left and the political Right is that wages are being decoupled from productivity.  Charts like this one from the Economic Policy Institute have been used by folks all over, from senators to pundits, from priests to politicians, to justify political policies such as minimum wage or re-distributive taxes on the rich and middle class.

But is this true?  The answer is no.  Take a look at that chart again, but this time look at the note on the bottom:

“Hourly compensation is of production/nonsupervisory workers in the private sector and productivity is for the total economy.”

So, what is going on here?  The author of the graph is looking at the wages of one sub-segment and comparing it to the overall economy.  Such a comparison is pretty meaningless.  Since wages are tied to productivity, if all productivity gains are made in the public and/or supervisory and/or service sectors, then those wages would rise and not the private production/nonsupervisory side.  In order for this chart to make sense, one would have to compare the wages of production/nonsupervisory to the same’s productivity.

So, what happens when we compare apples to apples?

You’ll see that there is no great decoupling.  Nope.  None at all.

“Oh yeah?  Well, what about CEO wages?!”

Turns out that one is a myth, too.  Many of these numbers (like the 331-to-1 ratio) are the result of another statistical sleight of hand.  They are comparing the salaries of S&P 500 CEOs (which represent about 0.03% of all CEOs) to production/nonsupervisory workers (which represent about 75% of all wage earners).  Again, when we look at an apples-to-apples comparison, we see that nope, all CEO wages are not outstripping average worker pay; in fact, it is rising at a lower rate, according to the BLS.

There’s an important lesson here: statistics can be used to say just about anything you want.  One must remember to think critically about any claim, especially when the claimant stands to benefit from it, and ask the all-important question: “does this make sense?”

16 thoughts on “The Great Decoupling?

  1. Huh. My FRED chart (interactive by the way) tells you how much 2014 real comp (270%) and productivity (325%) have risen since 1947. That is the gap or decoupling. A 20% across the board raise in real comp in 2014 would close the gap.

    I’m looking for a way to solve what that gap amount is in nominal 2014 dollars.

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    • Nominal 2014 dollars doesn’t make sense. It’s either in 2014 dollars or its in nominal dollars. Can’t be both.

      And your chart doesn’t make sense because the data is already indexed to 2009. Indexing it again to 1947 is meaningless.

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      • Look: we’ve gone from “it began in 1993” to 2010 now. You’re quibbling about the effects of a massive recession, not a long term trend. You’re attempting to justify your bias based off an anomaly. Poor show

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  2. Why was my grandfather able to afford a house by 26 and have 4 kids with a stay at home wife with no college degree yet me and my gf at 30 not only can’t afford to buy a house and see no chance in the future, we can’t even afford a single kid. We can’t even dream of retiring at 50 like they did on one non-college educated income with a pension from delivering gas to gas stations. We are highly skilled STEM majors and LIVE AT HOME WITH PARENTS BECAUSE WE CANT AFFORD TO BUY A HOME OR EVEN RENT WITHOUT A LONG COMMUTE. The american dream is dead for the young.

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