One of the brightest spots in this economy in recent years has been labor productivity: how much stuff we make and do in every hour that we spend making and doing it. Productivity has been
growing faster than it has historically, which has plenty of benefits: More productivity can generate more profit, it can help businesses keep their prices down, and it can let them raise wages.
But even though productivity growth has stayed strong in recent years, wage growth has been slowing. That’s a sign that the economy’s missing out on the benefits of strong productivity growth. If you’re a business owner and your workforce becomes twice as productive, that means it can finish a day’s work in half the amount of time. You could send those workers home, or you could have them make or do more stuff, so the business can make more money.
“That’s exactly where economists would say that productivity is the elixir for overall output growth,” said Nicole Cervi, an economist with Wells Fargo.
Cervi said more productive businesses can use that extra money to grow; they can buy new equipment, open a new location, or raise wages. “If you have stronger profitability because you’re producing more per hour worked, you could turn around and reward your workers by giving them higher wages,” Cervi said. Higher productivity doesn’t always mean higher wages, however. Ever since the 1980s, wage growth has been held back by de-unionization and too much unemployment, said Ben Zipperer, senior economist at the Economic Policy Institute.
“When there’s more people trying to find a job, that means employers don’t have to work as hard to find workers, and that puts downward pressure on hourly pay,” Zipperer said.
That’s why wage growth hasn’t kept up with productivity growth, he said. “Workers are almost producing twice as much as they used to produce, in real terms since 1980 or 1979, whereas hourly pay basically grew by only a third of that.” That gap started to narrow again after the pandemic. | 
