bivens on the great split : PRODUCTIVITY FROM COMPENSATION

So what should you note? Well, the average wages of those below the 90^th percentile have greatly lagged productivity. Ok, these are those low-skill people identified by the Heritage report, I guess. But look at wage-growth for those workers between the 90^th to 95^th percentiles—workers that earn more than at least 90 percent of the workforce. Surely there are some competent people in this group, no? After all, more than 10 percent of the U.S. workforce now has an advanced degree—some of them must be showing up here. And yet wage-growth cumulatively lags productivity growth by more than 30 percentage points for this group between 1979 and 2011.
It’s also worth noting that nearly two-thirds of the total cumulative wage-growth for this group of presumably highly-skilled workers can be accounted for by just five of the thirty-two years under discussion—the tight labor markets between 1997 and 2001 that lifted wages across the board. In short, for most of the past generation, the U.S. economy has been terrible at delivering wage growth even for half the workers above the 90^th percentile. Skills shortage? Really?
So where does this leave us? Yes, average compensation growth has been close (not equal to, but close) to productivity growth over the past generation. In fact, since 2000 there has been a large divergence between productivity and average compensation. But compensation for not just typical workers, but for the vast majority of workers, has badly lagged productivity over this period. And it is awfully unconvincing to hang this on the interpretation that it’s just about their allegedly poor skills.
And, of course, it’s always worth noting the one group (see the figure below) that has been able to see wage-gains far in excess of productivity growth, and which kept the overall average wage-growth from lagging too far behind productivity growth.

1. Just as one example, Heritage assumes that the gap between compensation and productivity caused by difference in the price deflators used to calculate productivity of firms and used to calculate inflation-adjusted compensation should be seen simply as evidence that consumer price inflation is overstated. There’s an equally compelling interpretation (pdf) that this is instead evidence that we’re overstating the productivity of firms that can be translated into consumption growth, and hence that the last generation has been characterized not just by growing inequality, but by even worse overall economic performance than is commonly thought.

2. To make sure the interpretation is clear—the wages of the 90^th-95^th percentiles rose 36% cumulatively over this whole period, if this group saw non-wage compensation rise at the average rate, this means that their compensation growth rose eight percent faster, or, 39 percent over the period.

- See more at: http://www.epi.org/blog/compensationproductivity-link-broken-vast/#sthash.6DR90Qzo.dpuf