March 6, 2014

The Myth of the Great Wages 'Decoupling'

Donald J. Boudreaux

Senior Fellow, F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics

Liya Palagashvili

Affiliated Scholar
Summary

Middle-class stagnation and the "decoupling" of pay and productivity are illusions. Yes, the U.S. economy is in the doldrums, thanks to a variety of factors, most significantly the effect of growth-deadening government policies like ObamaCare and the Dodd-Frank Act. But by any sensible measure, most Americans are today better paid and more prosperous than in the past.

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Many pundits, politicians and economists claim that wages have fallen behind productivity gains over the last generation. This "decoupling" explains allegedly stagnant (or in some versions of the story, declining) middle-class incomes and is held out as a crisis of the market economy.

This story, though, is built on an illusion. There is no great decoupling of worker pay from productivity. Nor have workers' incomes stagnated over the past four decades.

Read more at the Wall Street Journal