July 7, 1995

Productivity/Pay Linkage Seems Broken Lately

NCEO founder and senior staff member

Several recent reports have noted that during the last decade, real total compensation (wages and benefits) have been stagnant while returns to capital have soared (remember the Dow in the 1980s and how analysts wondered if it could ever top 3,000?). Yet productivity has increased steadily during that time. Usually, pay follows productivity. Economists suggest world competition, a less educated workforce (a result of more immigration), and sheer randomness may be the cause, but followers of Louis Kelso, the creator of ESOPs, would point to his argument that capital, especially as imbedded in technology, would eventually replace the need for labor faster than the greater prosperity it created could generate demand for new jobs. Labor's share of the wealth would thus decrease, while capital owners would flourish. The solution, of course, was to create more capital owners.