Trends in Real Wage Growth

In popular discussions of economic policy it is often claimed that real wage levels in the U.S. are stagnant or even falling. This Chicago Fed Letter reviews the statistical basis for such claims and explains why they are misleading. Other commentary has claimed that average real wages are rising, but not as fast as productivity, a phenomenon argued to have left U.S. workers with a smaller share of the national economic pie. This article shows that there has been a divergence between some common measures of productivity and real wages. However, the divergence has little to do with shifts in the distribution of income between labor and capital. Instead it mainly reflects something more mundane—changes in the relative prices of consumer and nonconsumer goods. Moreover, arguably more appropriate measures of real wages continue to closely track productivity gains.