Discover the Hidden Link Between Productivity and Wages

I recently came across a fascinating update from the Economic Policy Institute that highlights a growing gap between productivity and wages. Their Productivity-Pay Tracker reveals a trend that many of us have felt but perhaps not fully understood: while productivity continues to rise, wages are not following suit.

Imagine for a moment a simple bread bakery. In this bakery, skilled bakers and support staff work together to produce delightful loaves of bread. Now, picture this bakery investing in an automated bread-making machine. Suddenly, the need for skilled bakers diminishes, and a low-cost attendant can operate the machine instead. This scenario exemplifies how technological advancements can increase productivity without necessarily increasing wages.

In this new setup, the bakery’s production becomes more efficient, but the employment landscape shifts. The machine requires maintenance, which creates new jobs elsewhere, yet the bakery itself employs fewer people. Those who remain may earn more individually, but collectively, they receive a smaller share of the bakery’s sales. This scenario showcases a higher-order economy of scale, where specialized knowledge and expertise become highly valuable.

As a result, we witness a structural shift from an effort-based society to a knowledge-based society. Those with unique skills and knowledge, like the consulting baker at the bread machine factory, command higher returns. Conversely, jobs requiring physical effort see reduced pay, leading to stagnant wages for many.

Graph showing widening gap between productivity and wages from 1948 to 2025, highlighting economic disparity in opinion piece.

To truly grasp these changes, we need new metrics like the ‘wage content of a job’ and the ‘job content of a wage.’ These concepts could help us better understand the economic shifts at play, ensuring that a country’s job and knowledge profiles align with its income profile. This alignment indicates that capitalism is functioning correctly, where specialized skills are rewarded appropriately.

Reflecting on these insights, I explore these concepts further in my book “Subverting Capitalism and Democracy.” It’s a deep dive into how these economic dynamics impact our society and what we can do to navigate them effectively.

FAQs

What is the hidden link between productivity and wages?

The article explains that productivity can rise without wages rising at the same pace. Technology can make production more efficient while reducing the need for certain kinds of labor.

How does automation affect wages in the bakery example?

In the bakery example, an automated bread-making machine reduces the need for skilled bakers and allows a lower-cost attendant to operate production. The bakery becomes more productive, but fewer workers share in the bakery’s sales.

Why does the article describe a shift to a knowledge-based society?

The post argues that specialized knowledge and expertise become more valuable as machines take over effort-based work. People with unique skills, such as a consulting baker for a machine factory, can command higher returns.

What happens to jobs when productivity increases through technology?

The article notes that technology can eliminate some jobs at the point of production while creating other jobs elsewhere, such as maintenance roles. This changes the employment landscape rather than simply raising pay for everyone.

What new metrics does the article suggest for understanding economic shifts?

The post suggests looking at concepts such as the wage content of a job and the job content of a wage. These metrics are presented as ways to understand whether a country’s job and knowledge profiles align with its income profile.