Where Did the Productivity Growth Go? Inflation Dynamics and the Distribution of Income: Comments and Discussion‪.‬

Daniel E. Sichel: (1) Ian Dew-Becker and Robert Gordon have put together a very nice paper that covers some important ground. Although I will highlight some quibbles and questions, my overall view is that the paper is quite interesting and extremely well crafted. The issue the authors examine could be summarized as "Who got the benefits from the increases in labor productivity, in the past decade and over the longer haul?" To address this question, the paper covers four broad issues. First, it reviews the key measurement issues that must be understood before proceeding to a comparison of trends in labor productivity and real compensation per hour. Second, the paper tills some new ground on wage-price dynamics and presents a new inflation equation, an updated version of Gordon's "Goldilocks" equation from several years ago. Third, the paper uses the estimated wage-price dynamics to gauge the effect on the labor share of income when trend productivity growth changes. Finally, the paper turns to a micro analysis of changes in the income distribution, using Internal Revenue Service tax data from 1966 to 2001; importantly, the paper links these data to a measurement framework consistent with the National Income and Product Accounts, allowing the authors to examine which income deciles received gains in real hourly compensation that equaled or exceeded the rate of increase in labor productivity growth, and which received less. I will focus on each of these broad topics in turn. The first point made in the paper's measurement section is that comparisons of productivity growth and gains in real compensation per hour must be made using comparable data. Some analysts compare productivity in the nonfarm business (NFB) sector with average hourly earnings deflated by the consumer price index and find that productivity has risen significantly faster than real wages. As Dew-Becker and Gordon point out, however, such a comparison can be quite misleading, because the consumer price index used to deflate average hourly earnings differs from the deflator used for NFB productivity, and because the average hourly earnings measure covers the earnings of production and nonsupervisory workers only, not all workers in the sector. Dew-Becker and Gordon steer readers to a more appropriate earnings measure against which to measure changes in labor productivity, namely, a comparably deflated measure of compensation per hour from the Bureau of Labor Statistics' Productivity and Cost (P&C) release. This measure does cover all workers in the sector, and by this measure the difference between the growth rate of labor productivity and that of real compensation per hour over the past several decades is rather small.