Wages, productivity … and women.

Hot topic these days is how wages have remained stagnant for a long, long time … while productivity – think output per labor-hour has soared.

The political explanation: over-sized paychecks to greedy CEO’s have been draining the coffers.

That may be a part of the answer, but I bet it’s statistically insignificant.

I haven’t run the nums, but I bet that zeroing all CEO compensation wouldn’t budge the below chart.


In addition to greedy CEO’s, the batch of suspects usually includes: automation (shifting jobs to machines & computers), globalization (moving jobs to low wage areas), immigration (an influx of cheap labor).

In other words, the supply of labor and the demand for labor are out of whack.

OK, I get that.

But nobody seems to ever mention a pretty obvious bump in the supply of labor ….



You guessed it: women.

Since 1970 – the inflection point on most of the charts — labor force participation rate among women increased 22.5 percentage points … a 65% increase.

In round numbers, employment among women increased by almost 40 million.

And, the mix of men and women employed has shifted.

In 1970, women made up about 1/3 of the employment market.

Now, women account for about half.


Note how this chart mirrors the one above.



One might conclude that as women entrants swelled the labor market, wages got pressured.

It’s simple supply and demand.

And, as the labor mix shifted to proportionately more women, productivity went up.

That makes perfect sense to me.



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3 Responses to “Wages, productivity … and women.”

  1. neel master Says:

    Prof Homa — I’m moved to reply once again. :)

    You’re right that populist lefty rhetoric focuses on CEO pay; and you’re right that it doesn’t tell the whole story.

    As a lefty, I’m more interested in the distribution of corporate profits. Corporate profit margins have been increasing since the 70s, while the wage share of GNP has decreased. See chart here.

    This trend is the result of business decisions, and is not inevitable. Companies could just as easily choose to reduce margins in order to increase wages; however, this would depress market performance and go against management’s narrow self-interest (since bonuses and share price often go hand-in-hand.)

  2. Gary Blemaster Says:

    Neel this is way more complicated than you suggest. I think you have left out entirely the question of shareholders who own and control the companies. You have to consider that corporations are generally obligated by law to do what is best for shareholders. This could include deciding to make less, at least in the short term, to pay employees more and attract better people etc., something that might clearly benefit shareholders on a present value basis going forward. But boards of directors and management can’t simply decide to give corporate earnings to workers to make them better off or to be “fair”, whatever that means to you. It isn’t the board or management’s money. It belongs to shareholders. The board has a fiduciary responsibility to create wealth for its shareholders that dominates decision making in most circumstances, at least in well run companies.

    I fear that the macro drivers of globalization and technology are not reversable and that this “problem” will continue. I agree with Prof Homa’s insight on women entering the work force is another factor to consider in looking at the changes that are taking place. It is more than just more women coming into the work force. It is women doing much different jobs than they were “allowed” to do in the past. This is fantastic news for all of us. The addition of all this talent to the work force is huge in creating wealth and growth and more jobs. However, robots and computers primarily developed by a relatively small group of people and additional capital inputs, not generally domestic labor inputs, will continue to pressure wages for many.

    Gary Blemaster

  3. PibeGorilón (@Magilla7) Says:

    Your reasoning maker perfect sense Ken. Supply is way higher so regardless of productivity wages get slammed. The PC crowd does not want to open their eyes to this reality or that having women accrue Social Security benefits further stresses the system and contributes to an earlier demise.

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