UC Berkeley News


Gap between productivity and compensation increases
The annual jobs report from the Center for Labor Research and Education offers little for workers to celebrate

| 20 September 2006

Wages for workers in California have remained stagnant for the past year, while pay throughout the United States is failing to keep pace with inflation. This news comes despite rising productivity and corporate profits throughout the state and nation, says a report from the Center for Labor Research and Education released earlier this month.

Lead author Arindrajit Dube, a research economist with the center, compared U.S. Department of Labor household-survey data for the period June 2005-June 2006 with other data and found that the gap between productivity and compensation is at an all-time high - with labor's share of the gross domestic product matching that of 1947.

"Falling real wages reflect workers' weakened bargaining position," says Dube. "Among the likely causes are the offshoring of jobs, the declining share of workers in unions, and weakened federal worker protections."

According to the researchers, the middle class is taking a hit when it comes to wages, and nationally, even a college degree did not protect a worker from pay erosion.

Among the report's major findings:

. Job growth in California (172,000 new jobs) and in the U.S. (1.7 million new jobs) remained moderate in the past year, reflecting a slight decline from the previous year and hovering below pre-recessionary levels.

. Productivity increased 2.7 percent in the U.S. between 2005 and 2006.

. Pre-tax corporate profits grew by 12.5 percent after adjusting for inflation between 2004 and 2005 (the most recent year available), and by 38.8 percent since 2002.

. Real wages in California increased 0.4 percent, adjusted for inflation, between 2005 and 2006, while real wages in the U.S. declined 0.8 percent in the past year.

. Workers who are young, male, or lacking a college degree appear to be losing the most ground. Even workers with a bachelor's degree saw real wages fall 0.9 percent in the past year nationally. In California, however, real wages for those with bachelor's degrees rose 3.2 percent in the past year.

. In California, the professions contributing the most to the declining average wage since 2003 have been sales jobs in retail, professional jobs in health services, and blue-collar jobs in transportation and warehousing. On the national level, the profile was similar - with the addition of construction jobs. Healthcare jobs were less of a factor nationally than in California.

. Most of the change was due to a fall in real wages within industries and occupations, rather than a change in industrial or occupational composition.

. Along with the decline in real wages was the continuing erosion of job-based health coverage. The share of Americans under 65 with health coverage provided through an employer fell from 63 percent to 62.3 percent between 2004 and 2005. In California it declined from 57.1 percent to 54.8 percent in the same time period.

Researchers note that immigration of low-skilled workers cannot explain these trends: The declines in real wages apply to middle- as well as low-wage jobs, and they span all education levels. Moreover, they said, the wage decline in the nation overall was more pronounced than in California, where immigration is more prevalent.

The Labor Center's reports on wages, job quality, and employment trends can be found online at laborcenter.berkeley.edu/jobquality.