Real wages are the most direct mechanism through which the benefits of economic growth, and therefore, productivity gains, are transferred to workers. Employers’ ability to raise wages and other forms of labour compensation is greatly dependent on increases in labour productivity.
OECD Compendium of Productivity Indicators 2018
OECD Compendium of Productivity Indicators
Productivity and real wages over time
Key findings
Decline in labour income shares observed in most countries can be reformulated as a decoupling between growth in labour productivity growth and real labour compensation, when labour compensation costs are adjusted for inflation using the same price index applied to deflate value added (and so productivity). The impact of a decoupling on material well-being is further exacerbated given the widespread slowdown in productivity growth and even more so when real labour compensation is adjusted for inflation using the consumer price index – i.e. from a consumer/worker perspective – as changes in value-added inflation at the sector level and general inflation can differ significantly, which has been particularly the case in activities, such as manufacturing and information and communications services that have been more exposed to globalisation and technological change.
Definition
The labour component of income earned by the self-employed is not separately identifiable, as such it is assumed that the self-employed and employees earn the same average hourly compensation for their labour, with total labour compensation calculated as compensation of employees multiplied by the number of hours worked by all persons (employees and self-employed), divided by the hours worked by employees. For Chile, Japan, Korea and the United States, as total hours worked by main ISIC Rev.4 economic activity are not available, the number of persons employed by sector is used, and so, Figure 5.6, Figure 5.7 and Figure 5.8 necessarily assume that the average labour compensation of the self-employed is the same as that of employees for these countries.
Measures of value-added follow the definition in the 2008 SNA. Of note in this regard is the impact that relocations of headquarters or indeed intellectual property can have on recorded measures of economic activity. The latter in particular can be an important source of observed decoupling and so some care is necessarily needed in interpreting movements across countries and their implications on material well-being, as is the case in Ireland for example, where GDP grew by 26% in 2015.
Real measures of compensation can be calculated from the a producer’s perspective, where real average hourly labour compensation growth is deflated using the same price index as that used for value added, or from a worker’s perspective, where compensation is adjusted for general price inflation (in this case the consumer price index, CPI), which is a better reflection of the real purchasing power of households and so more appropriate for analyses of material well-being and inequalities (OECD, 2017).
Information on data for Israel: http://dx.doi.org/10.1787/888932315602.
Comparability
Total labour income represents the compensation received by both employees and self-employed for their labour. The compensation received by employees is readily available in the national accounts. However, total income received by the self-employed is recorded only as mixed income, with no distinction between the returns on their labour and the returns on their capital. Therefore, as described above, self-employed labour compensation is necessarily imputed. These imputations necessarily assume that either the average labour compensation per hour worked of the self-employed and employees or the average labour compensation per self-employed and per employee is the same, within a given sector. To what extent these assumptions (and in particular the latter) are true is likely to differ across countries.
Sources and further reading
OECD National Accounts Statistics (database), http://dx.doi.org/10.1787/na-data-en.
OECD Productivity Statistics (database), http://dx.doi.org/10.1787/pdtvy-data-en.
OECD (2017), OECD Compendium of Productivity Indicators 2017, OECD Publishing, Paris, http://dx.doi.org/10.1787/pdtvy-2017-en.
Figure 5.5. Labour productivity and average labour compensation per hour, total economy
Figure 5.5. Labour productivity and average labour compensation per hour, total economy (cont.)
Figure 5.6. Growth in labour productivity and average labour compensation per hour, manufacturing, 2001-2016
Figure 5.7. Growth in labour productivity and average labour compensation per hour, trade, transport, food and accommodation services, 2001-2016
Figure 5.8. Growth in labour productivity and average labour compensation per hour, information and communication services, 2001-2016
