1fAWAwx

Figure 5-3
Growth in Productivity and Average Wage, 1947–2013
Index, 1947=100 (log scale)
500
400
2013
300
Real Output
Per Hour
200
Real Average Wage
(output deflator)
100
Real Average Wage
(CPI deflator)
75
1945 1955 1965 1975 1985 1995 2005
Note: Real output per hour is for all workers in the nonfarm business sector. Average wage is for private production and
nonsupervisory workers. Output deflator is the price index for nonfarm business output. CPI deflator is the CPI-W.
Data on wages before 1964 reflects SIC-based industry classifications.
Source: Bureau of Labor Statistics, Productivity and Costs, Current Employment Statistics; CEA calculations.
incomes for the top 1 percent of households have increased by around 200
percent.10
Technological Change and Inequality
The lesson from Figure 5-3 is that productivity growth is important
for wage growth, but that does not mean that it automatically leads to wage
growth. One possibility is that the sources of labor productivity and MFP
growth since the early 1970s are qualitatively different than earlier, and that
these different sources of growth drove the trends in inequality over the last
40 years. In the early 1990s, a broad consensus emerged among economists
that an increase in the demand for skill relative to the supply of educated
labor was the primary driver of the sharp rise in inequality in the 1980s
(Bound and Johnson 1995; Katz and Murphy 1992; and Juhn, Murphy,
and Pierce 1993). It soon became accepted that “skill-biased technological
change” (SBTC) was the most important cause of increased inequality
(Berman, Bound, and Griliches 1994; Krueger 1993). The crux of the argument
is that, as computer technology became increasingly less expensive,
relative demand increased for workers with complementary skills. This
explanation has remained popular among economists with few modifications
to the basic argument until recently (for example, Acemoglu 2002).
10 The CBO notes that it chose 1979 and 2007 as points of comparison because there are
cyclical fluctuations in inequality measures and both years are business cycle peaks.
190 | Chapter 5