1. Productivity gains over the past few decades have not translated into broadly shared wage gains across many OECD countries. While average wages and median wages have grown more slowly than productivity, wage inequality has increased. 2. There is large heterogeneity across countries in the decoupling of wages from productivity. Technology, globalization, and differences in public policies and institutions that affect capital-labor substitution and rent distribution help explain differences in decoupling trends. 3. Wage dispersion between firms has increased in many countries, reflecting "winner-takes-most" dynamics from technology and globalization that have particularly benefited the most productive firms.

1. DECOUPLING OF WAGES
FROM PRODUCTIVITY
Special Chapter of OECD Economic Outlook
21 November 2018

2. 2
Productivity gains no longer translate
into broadly shared wage gains
Note: Employment weighted average of 24 countries (two-year moving averages ending in the indicated years). 1995-2013 for Finland,
Germany, Japan, Korea, United States; 1995-2012 for France, Italy, Sweden; 1996-2013 for Austria, Belgium; United Kingdom; 1996-2012 for
Australia, Spain; 1997-2013 for Czech Republic, Denmark, Hungary; 1997-2012 for Poland; 1998-2010 for Netherlands; 1998-2013 for
Norway; 1998-2012 for Canada, New Zealand; 1999-2013 for Ireland; 2002-2011 for Israel; 2003-2013 for Slovak Republic. All series are
deflated by the value added price index excluding the primary, housing and non-market sectors.
Source: OECD Economic Outlook November 2018.
100
105
110
115
120
125
130
135
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Index 1995 = 100
Labour productivity Average wages Median wages
Contributionof
declining labour share
Contributionof increased
wage inequality

3. 3
Large heterogeneity in decoupling
across countries
Source: OECD Economic Outlook November 2018
-2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0
Belgium
Japan
Slovak Republic
Canada
Netherlands
Australia
Israel
Ireland
United States
Hungary
Korea
Poland
-2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0
Italy
Finland
Spain
France
United Kingdom
Denmark
Sweden
Czech Republic
New Zealand
Germany
Austria
Norway
Total decoupling Labour share Wage inequality
Annualised growth rates in %; excluding primary, housing and non-market industries; 1995-2014

4. 4
“Superstar” firms or the rest?
Labour productivity and real wages (2001 = 100)
Panel A: Countries with declines in labour shares Panel B: Countries with increases in labour shares
90
100
110
120
130
140
150
160
2001 2003 2005 2007 2009 2011 2013 2001 2003 2005 2007 2009 2011 2013
Note: Labour productivity and real wages are computed as the unweighted mean across firms of real value added per worker and real labour compensation per worker.
Leaders are defined as the top 5% of firms in terms of labour productivity within each country group in each industry and year. The countries with a decline in the labour
share excluding the primary, housing, financial and non-market industries over the period 2001-2013 are: Belgium, Denmark, Germany, Ireland, Japan, Korea,
Sweden, United Kingdom and United States. The countries with an increase are: Austria, Czech Republic, Estonia, Finland, France, Italy, Netherlands and Spain.
Source: OECD Economic Outlook November 2018.

5. 5
Between-firm wage dispersion has increased
90-10 percentile ratio (2001=100)
Note: The solid and dashed lines are based on the estimated year dummies of a regression of, respectively, log-productivity and wage dispersion across firms within country-
sector pairs in the following countries: Australia, Austria, Belgium, Chile, Denmark, Finland, France, Hungary, Italy, Japan, Netherlands, New Zealand, Norway, and Sweden.
The dotted line is based on the year dummy estimates of a regression of the worker-level wage dispersion from the OECD Earnings Distribution database within each country
(Australia, Finland, France, Hungary, Italy, Japan, Netherlands, New Zealand, Norway, and Sweden).
Source: Berlingieri, Blanchenay and Criscuolo (2017) and authors’ calculations.
98
100
102
104
106
108
110
112
114
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Worker-level wage dispersion Between-firm wage dispersion Between-firm labour productivity dispersion

6. 6
Structural and policy drivers of decoupling
1. Based on Schwellnus et al. (2018) and Pak and Schwellnus (2018).
2. Based on De Serres and Schwellnus (2018) and Berlingieri, Blanchenay and Criscuolo (2017).
Note:  indicates statistical insignificance and ? indicates that drivers have not been subject to robust empirical analysis in the context of the
studies reviewed in this chapter.

7. 7
High skills reduce capital-labour substitution
even in high-routine industries
Note: Based on the industry-level results for numeracy skills reported in Schwellnus et al. (2018).
Source: Schwellnus et al. (2018)
Change in the labour share in response to a 10% decrease in the
relative investment price, % points

8. 8
Summary
Some decoupling on average but significant cross-country heterogeneity.
Technology-driven declines in relative investment prices and increased
global value chain participation partly explain the decoupling of wage
growth from productivity growth.
Public policies and institutions that affect the scope for capital-labour
substitution as well as the size and the distribution of producer rents can help
explain large differences in decoupling across countries.
Labour share declines have been particularly pronounced at the
technological frontier and wage dispersion between firms has increased,
which may reflect technology- and globalisation-induced “winner-takes-
most” dynamics.

9. 9
Country-level evidence:
De Serres, A. and C. Schwellnus (2018), “A general equilibrium (LM and PM reforms) perspective to
inequality”, in Astarita, C. and G. D’Adamo (eds.), Inequality and Structural Reforms: Methodological
Concerns and Lessons from Policy. Workshop Proceedings, European Economy Discussion Papers
No. 71, European Commission, Brussels.
Schwellnus, C., A. Kappeler and P. Pionnier (2017), “Decoupling of wages from productivity: Macro-
level facts”, OECD Economics Department Working Papers, No. 1373, OECD Publishing, Paris.
Schwellnus, C., A. Kappeler and P. Pionnier (2017), “The Decoupling of Median Wages from
Productivity in OECD Countries”, International Productivity Monitor, Vol. 32.
Industry- and firm-level evidence:
Berlingieri, G., P. Blanchenay and C. Criscuolo (2017), “The great divergence(s)”, OECD Science,
Technology and Industry Policy Papers, No. 39, OECD Publishing, Paris.
Pak, M. and C. Schwellnus (2018), “Labour share developments over the past two decades: The role
of public policies”, OECD Economics Department Working Papers, OECD Publishing, forthcoming.
Schwellnus, C., et al. (2018), “Labour share developments over the past two decades: The role of
technological progress, globalisation and “winner-takes-most” dynamics”, OECD Economics
Department Working Papers, No. 1503, OECD Publishing, Paris.
References