The Divergence of Pay and Productivity? Institutional Structural and Cyclical Factors

Sara Cantillon, Lutfi Ucal

Research output: Book/ReportCommissioned report

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The slowdown in productivity and slow wage growth (especially low and median wages) relative to productivity growth have become central policy issues in many OECD countries over the last decade. The role of rising economic inequality as a driver of wage-productivity decoupling is also beginning to get more attention. This project investigates the assumption on the positive relationship between pay and productivity that is increasingly called into question in light of wage stagnation. Specifically, it explores the assumption that increased productivity results in higher compensation for workers by conducting a review of the empirical analysis of the links between pay, pay inequality, economic growth and productivity in the UK. The project links directly to key gaps in theory and data evidence identified by PIN by addressing key evidence on the relationship between productivity growth and compensation and the possible ameliorating factors of globalisation, weakening trade unions, income inequality and technology. This short report takes stock of recent research in the UK on the drivers of wage productivity divergence and discusses implications for public policies. In summary, it identifies key discrepancies across the methodological, empirical and theoretical approaches employed. We focus on the complex interaction of institutional, structural and cyclical factors and in so doing question the presumed direction of causality from productivity to pay. It is our view that the direction of this causality needs much further investigation. In terms of pay inequality we review how mean and median wages skew the distribution as well as the role the deflator plays in such calculations. We conclude with a call for more pluralistic approaches.
Original languageEnglish
PublisherProductivity Insights Network
Commissioning bodyEconomic and Social Research Council (ESRC)
Number of pages11
Publication statusPublished - Apr 2019


  • pay
  • pay inequality
  • economic growth
  • productivity


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