Study: Pay not keeping up with productivity

BOSTON --Massachusetts workers are nearly 50 percent more productive now than they were in 1989, yet wages, when adjusted for inflation, have increased just 1.2 percent in the same time, according to a new study.

The typical employee today is working harder, faster and more efficiently, yet seeing few of the benefits.

"Despite productivity gains, workers have nothing to show for it in their pockets," said Andrew Sum, director of Northeastern University's Center for Labor Studies, and lead author of the report. "The average worker is just treading water."

Higher productivity has historically led to higher earnings after inflation, but economic forces are breaking the link between productivity and wages.

But globalization, technology and deregulation are expanding the labor pool and creating more competition, hurting the power of workers to bargain for raises and companies to raise prices, according to the study.

Corporate profits account for a larger share of the nearly $300 billion resulting from the production of goods and services by the state's private sector, according to the study, which analyzed Commerce Department data.

The share going to profits rose from 32 percent to 34 percent from 2001 to 2004, while the share going to employee compensation fell to less than 60 percent from more than 62 percent.

By increasing productivity, companies can produce more goods and services with the same or fewer workers.

Whereas labor cost savings have traditionally been shared by businesses and workers as higher profits and wages, intense competition has instead prompted businesses to increasingly devote savings to holding down prices, Sum said.

The airline industry is an example. Travelers today pay fares essentially unchanged since the late 1980s, even though fuel costs have soared, according to the Air Transport Association trade group.

Because of the competition in the industry, the airlines have been unable to pass on their higher costs to customers, and have instead cut jobs and wages forcing some into bankruptcy.

Low-income workers have fared the worst from productivity gains, according to the study, with full-time working women in the bottom fifth of the income scale seeing inflation-adjusted earnings fall 1 percent.

Those in the top fifth saw earnings rise 16 percent.

Some economists disagree that the link between productivity and earnings is broken. David Tuerck, the executive director of the Beacon Hill Institute at Suffolk University, said analyses that rely on median or average earnings can show a misleading picture of workers' well-being.

Those studies, he said, fail to account for workers who acquire skills and experience that helps them move up the pay scale.

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Information from: The Boston Globe, http://www.boston.com/globe