It should be noted that prior to the 1970s, worker compensation (wages plus benefits) grew in tandem with labor productivity. Since that time, however, there has been a divergence in wage and productivity growth, as the rate of growth in productivity outpaced wage growth.This divergence speaks to the fact that while labor productivity growth is important for wage growth, it is not the only factor that affects it.

Lower Worker Bargaining Power

Some research indicates that changes to the power dynamic between workers and employers may affect wage growth. Recent studies have found that wages are lower in markets where employers are more concentrated. When relatively few firms dominate the labor market, they gain more bargaining power over workers, which leads to decreased wages. Evidence suggests that this relationship is exacerbated when unionization rates are lower, and unionization — particularly in the private sector — has been decreasing for decades.

The Economy Is Less Dynamic, and Workers Are Moving Less Often

The American economy is becoming less dynamic. Economic dynamism is a broad term that covers many metrics that contribute to a growing economy, including geographic mobility, job turnover rates, new business creation, and the share of people employed by new companies. Yet in all of these metrics, the country is performing less well than it once did. This has implications for productivity growth and therefore impacts wage growth.

Part of what makes the economy less dynamic is that American workers are less likely to move today than they were 30 years ago. Since 1990, the percentage of people who move from one state to another in a given year has declined by half, from 3.8 percent in 1990 to less than 2.0 percent in 2016. If workers have more job options, they are better able to negotiate (and renegotiate) their salary. Thus, lower geographic mobility — which results in less job choice — reduces the ability of workers to negotiate better wages and might suppress wage growth.

Higher Benefit Costs

Wages are not the only form of worker compensation, and some economists argue that total compensation — including non-wage benefits such as health insurance and paid time off — is a more accurate measure of economic well-being than wages. The average worker receives 33 percent of their total compensation in the form of non-wage benefits; by comparison, in 2004, this number was 29.

Total compensation may well be a more accurate measure of worker well-being, because the metric provides a more comprehensive picture of both the salary and benefits received by a worker. However, using this metric doesn’t necessarily improve the narrative regarding worker well-being, though it does provide more nuance than the wage growth metric. For example, by both metrics, those who are in the middle of the income distribution are about where they were in 2009. According to the Bureau of Labor Statistics, between 2009 and 2018, wages for middle income earners grew by less than 1 percentage point. Total compensation for this group grew by 2.6 percentage points over the same period. Conversely, both high income and low income workers have fared better during the same period. For both of those groups, wages grew by between 3 and 5 percentage points. The nuance provided by the total compensation comes into play here — by this metric, growth at the high end of the distribution was double that of the low end.