Real wages

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    What is a good explanation for real wages leveling off while productivity still climbs? I hear liberals citing this data and from the numbers I see real wages have seemed to level off since the 1970s.

    Here is one of the sources:


    The productivity measure computed by the BLS doesn’t refer to the marginal productivity of labor that relates to the wage rate. Here is a brief BLS explanation of its method of computation:

    And here is the technical explanation:

    The BLS computation of wages and real wages is also problematic as a metric for assessing actual markets:

    Here is the BLS explanation of the method:

    Here’s the technical details.

    The short answer is that “productivity” in the chart does not refer to the productivity that relates to wages. So the alleged relationship shown in the chart is a statistical artifact. It does not show that workers are working more productively and yet not being paid more. To show that, one would have to look at a single production process to determine what the change in physical production of a unit of labor has been over some time period and then what the corresponding change has been in the wage of that labor. And then, this would need to be done for all production processes to get a sense of the what’s happening across the entire economy.


    Conclusions like these are some of the unfortunate consequences of an indiscriminate use of aggregates in economic theorizing. There is no “labor market” that exists in any economy; instead, there are many different labor markets employing workers who differ in their skills and other qualities. It follows, as Dr. Herbener states, that there is no “aggregate labor productivity” that determines “the real wage rate.”

    Such fallacious reasoning based on imaginary aggregates is one of the most unfortunate consequences of the Keynesian Revolution. For more on this see p. 15-24 in “Tiger By the Tail,” a collection of Hayek’s writings, where he talks about the misuse of aggregates in Keynesian Macroeconomics:

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