Increasing Productivity and Boosting Wages: Is Innovation the Answer?

August 5, 2011 • Adam Looney, Michael Greenstone • Employment & Wages, Technology & Innovation

Throughout our nation’s history, innovation has driven living standards by raising compensation of workers, increasing productivity, developing new industries, and lowering consumer prices.  When productivity is compared to compensation, it is evident that when workers produce more, they also earn more. Yet since 1973, the pace of innovation has slowed, as has compensation growth.  From 1947 to 1973, the inflation-adjusted hourly compensation of workers increased by a rate of 2.7 percent a year, but since then it has increased at the slower rate of 1.6 percent. This small change in the rate of growth has dramatically affected the wellbeing of American workers today: if this slowdown had not occurred, all else equal, the wages and benefits of workers would be $18 per hour higher.   

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