The Erosion of Collective Bargaining Has Widened the Gap Between Productivity and Pay

Source: David Cooper and Lawrence Mishel, Economic Policy Institute (EPI), Raising America’s Pay, January 6, 2015

From the summary:
To understand the growth of income inequality—and the disappointing increases in workers’ wages and compensation as well as middle-class incomes—it is crucial to understand the divergence of pay and productivity.

Productivity growth, which is the growth of the output of goods and services per hour worked, provides the basis for the growth of living standards. Productivity and compensation (wages and benefits) of the typical worker grew in tandem over the early postwar period until the 1970s. In contrast, over the last few decades, productivity has grown substantially, but the hourly compensation of the typical worker has grown much less, especially in the last 10 years or so. In fact, the gap between productivity and compensation growth for the typical worker has been larger since the early 2000s than at any point in the post–World War II period. As such, the last 10 years have been a “lost decade” for American workers. In this light, it is more accurate to say that productivity provides the potential for growing living standards because there is no guarantee that productivity gains will be widely shared.

One key factor in the divergence between pay and productivity is the widespread erosion of collective bargaining that has diminished the wages of both union and nonunion workers. This will be demonstrated below by showing that the productivity–pay gap grew most in those states where collective bargaining coverage declined the most.