II. Literature Review (The Relationship Between Labour Productivity and Real Wages Growth in Canada and OECD Countries‪)‬

The finding that real median earnings in Canada have barely moved in 25 years is only the most recent news in a long-running debate over the relationship between labour productivity and real wages. In Canada, a number of analysts have explored the relationship between labour productivity and real wages. Fisher and Hostland (2002) found that while the relationship was stable over the period 1956 to 2001, labour productivity growth had significantly outpaced real wage growth from 1994 to 2001. These recent developments could potentially call into question the stability of the relationship going forward. They concluded that the divergence in recent years was little cause for concern since labour and non-labour income shares tend to revert to their respective means over the long term. With the benefit of several more years of data, part five of this report largely confirms the findings of Fisher and Hostland and offers possible explanations for the observed divergence between labour productivity and real wages (part six). In contrast with Fisher and Hostland, Russell and Dufour (2007) argue that the growth of real wages has not kept up with the growth of labour productivity in the long-term, and that the divergence between labour productivity and real wages is thus a legitimate cause for concern. However, they use a narrow measure of labour compensation as a proxy for real wages. Part four of this report argues that such a narrow measure is an inappropriate proxy.