Viral Charts and the Productivity Pay Gap?

It's generally a good idea to be skeptical of viral charts, but sometimes they tell the right story while having technical flaws.

If you’re on social media and have any interest in economics, there’s a good chance you’ve seen this chart. A few people have invested time in “debunking” the famous “Productivity Pay Gap” chart for various nitpicky and legitimate reasons¹, but I think it’s well constructed. More importantly, I don’t think it’s hideously disingenuous in the way some viral charts tend to be. It tells an intuitive modern American story where two contradictory things are happening:

• In aggregate, the U.S. is vastly more productive and wealthy than it was in the early 1970s;

• And, huge portions of the population don’t feel like they’ve directly benefited from those gains.

On the other hand, you can find a lot of economic data series that tell a confounding story. Aggregate inflation-adjusted income is higher than ever and have grown faster than productivity (even excluding government transfers).

But, aggregate statistics don’t apply to everyday experience and include confounding variables like population growth. The economic data that most closely tracks the productivity series is Real Disposal Personal Income, per Capita. Let’s break that one down:

• Personal Income: All income received by individuals (wages, dividends, interest, rents, proprietors’ income, transfers, etc.).

• Disposable: After personal taxes.

• Real: Adjusted for inflation (so it reflects purchasing power).

• Per Capita: Divided by population, to control for population growth.

I find this series a compelling comparison because it captures all income sources and subtracts taxes. Thus, it gives a broader view of how much real income households get to use.

Ultimately, comparing a median value (income) to an aggregate value (productivity) is not the best methodology, but most people’s lived experience is closer to the median. Unfortunately, we don’t have anything close to a “median worker productivity” statistic, but maybe we can hack something together in a later post.

1. The biggest problem is comparing an aggregate (economy wide) statistic like productivity to a median value. The statistician in me hates this methodology, but populist in me sympathizes with it.