Decoupling of wages from productivity

The decoupling of median wages from productivity, sometimes known as the great decoupling, is the gap between the growth rate of median income and the growth rate of GDP per person or productivity. Erik Brynjolfsson and Andrew McAfee highlighted this problem toward the end of the twentieth century and the beginning of the twenty-first century. This problem furthermore leads to wage stagnation for the median despite continued economic growth overall. Mathematically, if inequality grows, then top incomes and total income can increase even if median income is relatively stagnant.

A number of causes have been hypothesized, including advances in technology (such as automation), globalization, neoliberal reforms, self-employment and wage inequality. Some commentators argue that some or all of the Great Decoupling can be explained as the product of faulty assumptions about the underlying economics.

Background

On average across 24 OECD countries, there has been significant decoupling of real median wage growth from productivity growth over the past two decades. There have been large cross-country differences, both in overall decoupling and the extent to which it has gone together with real median wage stagnation. In a number of countries with above-average productivity growth, such as Korea, Poland or the Slovak Republic, real median wages have grown well above the OECD average despite significant wage-productivity decoupling. However, where productivity growth has been around or below the OECD average, such as in Canada, Japan and the United States, decoupling has been associated with near-stagnation of real median wages.