What Happened to the Gains From Strong Productiviy Growth?

Over the past decade, the United States economy has experienced strong economic growth due in large part to a resurgence in productivity growth. During the period from 1996 to 2006, average labor productivity grew 2.8 percent annually as compared to 1.4 percent from 1974 to 1995. Researchers have devoted considerable effort to understanding the source of this surge in productivity, focusing especially on the role played by computers and advances in information technology. Less attention has been paid, however, to examining how the gains from this growth have been distributed. In the past few years, observers have noted that the share of income paid to labor has been falling, while corporate profits have surged. Also, observers have pointed out that income inequality appears to have widened, with little increase in real wages for low-income workers, while executive pay has skyrocketed. Consequently, there has been a growing sentiment among the public that the average household is not sharing in the recent economic prosperity. This article examines how the gains from increased productivity growth have been distributed. There are two traditional ways of analyzing how income in the economy is shared. The first measure is