Labour income and productivity

Abstract

Labour income is the most direct mechanism through which the benefits of productivity gains, and thus economic growth, are transferred to workers. Indeed, employers’ ability to raise wages and other forms of labour income depends on increases in labour productivity, highlighting the welfare implications of productivity growth and its role as the main driver of long-term living standards. However, empirical evidence has pointed to a decoupling of labour productivity growth from growth in real labour income in a majority (around two thirds) of OECD countries since the mid-1990s. The decline in labour income shares observed in these countries precisely reflects this decoupling between real labour income and labour productivity.