Labour Productivity and the Distribution of Real Earnings in Canada, 1976 to 2014

James Uguccioni, Andrew Sharpe and Alexander Murray
Authors registered in the RePEc Author Service: James Uguccioni ()

No 2016-15, CSLS Research Reports from Centre for the Study of Living Standards

Abstract: Canadian labour is more productive than ever before, but there is a pervasive sense among Canadians that the living standards of the 'middle class' have been stagnating. Indeed, between 1976 and 2014, median real hourly earnings grew by only 0.09 per cent per year, compared to labour productivity growth of 1.12 per cent per year. We decompose this 1.03 percentage-point growth gap into four components: rising earnings inequality; changes in employer contributions to social insurance programs; rising relative prices for consumer goods, which reduces workers' purchasing power; and a decline in labour's share of aggregate income. Our main result is that rising earnings inequality accounts for half the 1.03 percentagepoint gap, with a decline in labour's income share and a deterioration of labour's purchasing power accounting for the remaining half. Employer social contributions played no role. Further analysis of the inequality component reveals that real wage growth in recent decades has been fastest at the top and at the bottom of the earnings distribution, with relative stagnation in the middle. Our findings are consistent with a 'hollowing out of the middle' story, rather than a 'super-rich pulling away from everyone else' story.

Keywords: Productivity; Wages; Income Distribution; Labour Productivity; Canada; Income; Inequality (search for similar items in EconPapers)
JEL-codes: J24 J31 O38 O47 O51 (search for similar items in EconPapers)
Date: 2016-11
New Economics Papers: this item is included in nep-eff, nep-lma and nep-ltv
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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