Wage Stagnation: Much More Than You Wanted to Know

[Epistemic status: I am basing this on widely-accepted published research, but I can’t guarantee I’ve understood the research right or managed to emphasize/believe the right people. Some light editing to bring in important points people raised in the comments.]

You all know this graph:

Median wages tracked productivity until 1973, then stopped. Productivity kept growing, but wages remained stagnant.

This is called “wage decoupling”. Sometimes people talk about wages decoupling from GDP, or from GDP per capita, but it all works out pretty much the same way. Increasing growth no longer produces increasing wages for ordinary workers.

Is this true? If so, why?

1. What Does The Story Look Like Across Other Countries And Time Periods?

Here’s a broader look, from 1800 on:

It no longer seems like a law of nature that productivity and wages are coupled before 1973. They seem to uncouple and recouple several times, with all the previous graphs’ starting point in 1950 being a period of unusual coupledness. Still, the modern uncoupling seems much bigger than anything that’s happened before.

What about other countries? This graph is for the UK (you can tell because it spells “labor” as “labour”)

It looks similar, except that the decoupling starts around 1990 instead of around 1973.

And here’s Europe:

This is only from 1999 on, so it’s not that helpful. But it does show that even in this short period, France remains coupled, Germany is decoupled, Spain is…doing whatever Spain is doing, and Italy is so pathetic that the problem never even comes up. Overall not sure what to think about these.

2. Could Apparent Wage Decoupling Be Because Of Health Insurance?

Along with wages, workers are compensated in benefits like health insurance. Since health insurance has skyrocketed in price, this means total worker compensation has gone up much more than wages have. This could mean workers are really getting compensated much more, even though they’re being paid the same amount of money. This view has sometimes been associated with economist Glenn Hubbard.

There are a few lines of argument that suggest it’s not true.

First, wage growth has been worst for the lowest-paid workers. But the lowest-paid workers don’t usually get insurance at all.