Sachdev 1

Economists have been puzzled by the recent trends in real wage and productivity growth. While productivity has risen steadily, the popular press has lamented that real wages have failed to keep pace. Some argue that the inclusion of benefits explains the disparity. Others suggest that labor has lost much of its bargaining power with the firm, as evidenced by a decline in unionization rates, and as such, a lower portion of firm profits are going to pay wages and salaries. Still others have suggested that the puzzle of real wage and productivity growth might not be much of a mystery at all – real wages have kept pace with productivity depending on how one measures these trends. This paper seeks to examine more closely the dynamics of real wage and productivity growth. Using data from various US government agencies, including the Bureau of Labor Statistics and the Bureau of Economic Analysis, it takes an empirical approach to determine the extent of the divergence between real wage and productivity growth and discusses factors influencing these relationships.