When productivity increases, so do wages

Although productivity is the baseline of wages, deviations do occur. Productivity and pay can diverge for multiple reasons that are not included in the standard economic model. Read this blog post to learn more about pay versus productivity.

“Workers are delivering more, and they’re getting a lot less,” argued former Vice President Joe Biden in a speech at the Brookings Institution this summer. “There’s no correlation now between productivity and wages.”

Senator Elizabeth Warren, a Democratic presidential rival, agrees. Her campaign website states that “wages have largely stagnated,” even though “worker productivity has risen steadily.”

The claim that productivity no longer drives wages is common enough on both the political left as well as the right. Proponents of this view argue that workers aren’t getting what they deserve based on their contributions to employers’ bottom lines.

Income inequality — the gap between the incomes of the rich and everyone else — supposedly demonstrates that the economy’s rewards are flowing, undeservedly, to those at the top. Populists take that conclusion even further, arguing that capitalism is fundamentally broken.

If that is what’s happening, it refutes textbook economics, which argues that wages are determined by productivity — by the amount of revenue workers generate for their employers. If a company paid a worker less than her productivity suggests she should be making, then she would go down the street and get a job that would pay her what she’s worth. Employers compete for workers, ensuring that workers’ wages are in line with their productivity.

This theory leaves out a lot, of course. Pay and productivity can diverge for any number of reasons not included in the standard economic model. Workers may not know how much revenue they create, or what other employment options are available to them. And changing jobs has its own costs, which in the real world gives employers some power over wages.

For critics of the current system, “some power” is a drastic understatement. In their telling, the decline of labor unions; erosion of the minimum wage; rise of non-compete and no-poaching agreements; inadequate enforcement of workplace standards and the like have dramatically reduced the bargaining power of workers. This has allowed businesses to drive down wages to the bare minimum job applicants and current workers will accept, pushing their pay below what their productivity suggests it should be.

Which view is correct? The latest piece of evidence on this question comes from Stanford University economist Edward P. Lazear, who analyzed data from advanced economies and confirms a strong link between pay and productivity.

Like several previous studies, Lazear’s research finds that low-, middle- and high-wage workers all benefit from growth in average productivity. This suggests that improvements in overall economic efficiency help all workers, not just the rich.

But Lazear argues, correctly, that a relevant issue is not whether workers benefit from changes in average productivity. Instead, if you want to know whether workers are being paid for their productivity, you should look at whether changes in the productivity of, say, low-wage workers affect the pay of that specific group.

It is infeasible to measure the productivity of individual workers. (How much revenue per hour of work do I generate for Bloomberg?) So Lazear examines productivity at the industry level, and compares industries that employ highly skilled workers with those that employ lesser-skilled ones.

Using data on the U.S. from 1989 through 2017, Lazear finds that productivity in industries dominated by higher-skilled workers increased by (roughly) 34 percent in that period. The wages of those workers grew by 26 percent. For industries requiring lesser skills, productivity increased by 20 percent, while wages grew by 24 percent.

In other words, pay increased faster than productivity in industries with lesser-skilled workers, and slower than productivity in industries with higher-skilled workers. Another striking implication of this finding is that “productivity inequality” — the gap in productivity between workers — may have grown faster than wage inequality over this period. While wage differences have increased over time, differences in productivity between groups of workers have increased even more.

The upshot: Slower wage growth for lesser-skilled workers is not prima facie evidence that employers have significant power over wages or that productivity doesn’t determine wages. Instead, Lazear concludes that productivity growth for high-skilled workers has increased rapidly enough (actually, more than enough) to account for growing inequality.

What caused this? Lazear points to two familiar explanations. Technological change disproportionately benefits the highly skilled, increasing their wages and productivity. And the globalization-led shift to a services economy has reduced the productivity of goods-producing, lesser-skilled workers.

Lazear also suggests that colleges may have improved more than high schools in their ability to impart skills to graduates. If so, industries dominated by college graduates would be expected to have had faster productivity growth over the last three decades. This would have caused both a wider dispersion in productivity across industries and in wages across groups of workers.

Such research doesn’t settle the debate, of course. Yet it does strengthen my view that wages are heavily influenced by market forces, even if they are not entirely determined by them. While productivity sets the baseline for wages, deviations from that baseline occur.

So contrary to what Biden, Warren and (many) others say, market forces, not power dynamics, are the principal driver of inequality.

This gets at the heart of the moral properties of the market economy. Capitalism produces unequal outcomes: The wages for some grow faster than for others. Those disparities are palatable if they are caused by differences in risk-taking, work effort and skills. They are tolerable if people are getting, in some sense, what they deserve. But if wages aren’t determined by productivity — if hard work doesn’t pay off and if workers aren’t receiving just returns — then something has gone badly wrong with the system.

Fortunately, the system doesn’t seem to be broken. It does need to be fine-tuned, however, with the goal of increasing the productivity of the lesser skilled. And we should be confident that if their productivity increases, so will their wages.

SOURCE: Bloomberg News (03 January 2020) "When productivity increases, so do wages" (Web Blog Post). Retrieved from

Obesity drives up workers’ comp claims

Originally posted November 21, 2013 by Dan Cook on

Obese employees make more workers’ comp claims, and they make costlier ones than non-obese employees.

That conclusion was drawn by Lockton Companies based on its review of several independent studies on employees with high health risks (including obesity, smoking, high blood pressure and limited physical activity) and workers’ comp claims.

The Kansas City, Mo., provider of risk management, insurance, and employee benefits consulting services cites three studies that, when taken together, paint a troubling picture, especially of the impact overweight workers can have on workers’ comp claims.

Lockton says that wellness programs, properly designed and implemented, can address this situation by helping obese workers lose weight. But Lockton doesn’t offer any stats on how effective wellness programs are overall in combating obesity.

Still, the studies cited offer food for thought.

The University of Michigan Health Management Research Center studied Xerox Corp. employees and confirmed that “employees with high health risks tended to have the highest workers’ compensation costs.”

Xerox was an early proponent of wellness plans. The UM followed employees for four years and reported that “workers’ compensation costs increased for those employees whose health risks were increasing or high already (e.g., smoking, physical inactivity, hypertension, high cholesterol, and life/job dissatisfaction).”

Lockton also refers to a 2010 study by the National Council on Compensation Insurance which more closely correlated obesity with workers’ comp claims.

The data “showed that workers’ compensation claims that included the obesity comorbidity diagnosis incurred significantly higher medical costs than comparable claims without the high health risk. NCCI also discovered that claims for employees identified

as “obese” almost tripled from 2000 to 2009 from 2.4 percent to 6.6 percent,” Lockton said.

Lockton then cites a more recent NCCI study testing whether “the lost-time duration of obese claimants is a multiple of non-obese claimants.”

It was.

“According to their findings, obese claimants incurred medical costs 6.8 times higher than non-obese (as defined by body mass index), were twice as likely to file a claim and an indemnity duration that averaged about 13 times higher,” Lockton summarized.

What Lockton suggests is that companies take the following steps to empower their wellness plans to really help employees address chronic health issues:

  • Proactively engage HR and employee benefits to better understand the scope and breadth of existing corporate wellness initiatives, as well as how the organization is tracking the effectiveness of those programs.
  • Determine how your insurer and/or third party administrator is capturing data on comorbid factors in workers’ compensation claim files and how that information can be incorporated into effective analytics.
  • Collaborate with internal safety, health, and environment professionals (if applicable) to discover how best to integrate employee wellness with workplace safety.

“Effective corporate wellness initiatives have shown to be successful in not only reducing the duration of lost-time workers' compensation claims,” said Lockton's Michal Gnatek, author of the report, “but also in promoting healthy behaviors that potentially inhibit unsafe or inattentive workplace behavior.

“Risk managers and claims professionals should be adding employee wellness to the available arsenal of weapons to combat increasing claims.”


Thousands of California injury claims made by professional athletes

Originally posted Ken Bensinger on September 25, 2013 on

The National Football League’s increasingly visible injury legacy has become a topic of national debate, one that threatens to cast a lasting shadow over the country’s most popular, and profitable, sport.

Far less attention has been paid to the physical woes of other athletes, but a review of injury filings in California suggests that professional athletes of all stripes walk away from their sports with nagging and often permanent injuries.

Over the past two decades, more than 2,500 claims have been filed by former baseball, basketball, hockey and soccer players against their former teams in California’s workers’ compensation system.

In the past six years, more than 940 of them -- among them stars such as two-time baseball most valuable player Juan Gonzalez and basketball legend Kareem Abdul-Jabbar -- have made filings alleging serious brain and head injuries.

The claims were isolated as part of a Los Angeles Times analysis of more than 3 million filings made to the California Division of Workers’ Compensation. Last month, The Times published a searchable database of claims by football players, and now it's being updated will all other major team sports.

Database: workers' comp claims by baseball players

Database: workers' comp claims by basketball players

Database: workers' comp claims by hockey players

Database: workers' comp claims by soccer players

Database: workers' comp claims by women's basketball players

Although the total number of claims from all other sports combined is significantly smaller than those made by football players, which number nearly 5,000, the data are a clear indication of the lasting toll professional sports leave on all athletes.

They also help explain why Major League Baseball, the National Hockey League, the National Basketball Assn., the Women’s National Basketball Assn. and Major League Soccer joined the NFL in a push to pass legislation in California that would seriously restrict such claims in the future.

That bill, AB 1309, easily passed the Legislature this month and is now on Gov. Jerry Brown’s desk. If he signs it into law, it would preclude all athletes who played for non-California teams, as well as many California athletes, from making claims for the most serious types of injuries, incurred over time and known as cumulative trauma.

The leagues, as well as their insurers, say the claims should not be filed in California. However, the players unions in each sport retort that such claims are generally not permitted in other states due to narrow definitions of cumulative trauma or expired statutes of limitations.

Organized labor worries that the measure potentially opens the door for future legislation that could deprive workers in other industries of their ability to file here. Because teams and their insurers pay the entirety of costs of successful claims without a dime of taxpayer money, unions argue that the bill would amount to a huge handout to billionaire owners of professional teams.

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Unlike civil lawsuits, which workers cannot file against their employers for workplace injuries, workers’ compensation awards are strictly limited in size and scope and may include lifetime medical care. Still, spread across thousands of injured players, the costs can mount quickly.

For example, former baseball all-star Cliff Floyd received a $102,500 settlement from the San Diego Padres for injuries to the brain, face, neck, shoulders and numerous other body parts this past April, documents reviewed by The Times show. Floyd, who retired after the 2009 season, now works as a television and radio analyst.

Overall, more than 900 baseball players, including many minor-leaguers, have made claims in California since 1990, The Times’ data show. Of them, at least 460 allege cumulative head or brain trauma, which has been linked to conditions including dementiachronic traumatic encephalopathyand Alzheimer’s disease.

Since 2006, WNBA players have made 87 filings in the state, while professional soccer players have made 51 claims in that period. Although it’s not known for its jarring physical collisions, an increasing number of soccer players are alleging head trauma.

Among them is former U.S. national soccer team star Eric Wynalda, who filed in 2009 claiming cumulative injuries to a host of body parts including his head. In 2011, he won a $127,500 settlement paid by the Chicago Fire of the MLS and the Charleston Battery of the United Soccer Leagues. Settlement figures do not include attorney fees.

Claims by former stars garner the most attention and tend to be held up by the sports leagues as evidence that California’s system has been too generous to people paid millions of dollars to play sports.

But a substantial majority of the claims come from athletes who never made anyone’s all-star list, enjoying relatively short careers and frequently earning the league minimum. Hundreds more were filed by people who never made it to the big leagues, earning little better than the minimum wage in the minor leagues, including Arena Football, the XFL as well as minor-league baseball and hockey, data show.

Even in professional sports’ lowest levels, however, the contact is hard and the physical toll apparently very real. During his career, defenseman David Cousineau skated for teams such as the Las Vegas Wranglers, Phoenix Roadrunners and Long Beach Ice Dogs, earning just $650 a week toward the end of his five-year career.

The rangy Canadian never saw a minute of NHL ice, but his workers’ compensation filing in California details a string of traumas to his head, shoulders, back and legs. In 2010, Cousineau won a $68,000 settlement from his last two teams, agreeing to permanently forsake all future claims and to cover his own medical expenses in exchange.



How to Determine if Your Company Picnic Could Create a Workers Comp Claim

By Rebecca Shafer-ReduceYourWorkersComp

Many Factors to Consider if Injury is Covered

Summer picnics, softball games, corporate retreats and golf outings all sound like fun.  When all the attendees are employees and an injury occurs, is it covered by workers’ compensation?  “It depends” is the answer the claims adjuster or corporate counsel will give you.

In order to determine if workers’ compensation is applicable, the adjuster will have to ask a lot of questions.  While the criteria may vary from state to state, the following are general guidelines to separate a workers’ compensation injury from a personal injury that is not covered by workers’ compensation.

  • Is the event employer sponsored or employee sponsored?
  • Is the event primarily financed by the employer?
  • Does the employer benefit from the event by providing training or presentations, or by making morale speeches or passing out special achievement awards?
  • Does the employer mandate attendance or is attendance voluntary?
  • Does the employer encourage attendance by making a record of attendance?
  • Were the employees paid for the time in attendance?
  • Were employees who chose not to attend required to work their regular job if not in attendance?
  • Do the employees regard the event as a fringe benefit they are entitled to?
  • Does the social event occur during normal work hours?

If the answer is “yes” to most of the above questions, the injury most likely will be covered by workers’ compensation.

Activity of Employee at Time of Injury Big Factor

However, the activity of the employee at the time of the injury is also a factor in whether or not the injury is workers’ compensation related.  For example – the corporate retreat is to be held Friday, Saturday and Sunday at a five star resort.  The sales manager arrives on Thursday night to enjoy the amenities of the resort.  While walking down the grand staircase in the hotel lobby, he trips and falls, and fractures both arms.  Even though the sales manager was required to be at the resort as a part of his job, the injury occurred while the employee was there on his own time.  The employer received no benefit from the sales manager arriving early to enjoy the amenities of the resort prior to the official start of the corporate retreat.

In the above example, if the same fall and injury had occurred during the course of the meeting on Saturday, while the sales manager went from one presentation to another, it would be covered by workers’ compensation.

When the benefit of the social event to the employer is hard to measure, any injury occurring is normally not workers’ compensation.  This is often true with sporting events such as the company softball team, bowling team, volley ball team, etc.  When the company allows the team to use the corporate name in the sports league but does not schedule the sports events, does not provide financial support and keeps no records of participation, any injury will not be covered by workers’ compensation.  When all participation is totally voluntary and the sporting event is after normal business hours, any injury that occurs is not workers’ compensation.  For example – the first basemen for the company sponsored softball team breaks his ankle sliding into home plate with the winning run in the bottom of the ninth inning.  [WCx]

If Social Event Being Paid in Lieu of Work, Injuries Covered

When the social event is company sponsored and the company encourages participation, even if attendance is voluntary, if an injury occurs during the event, it is workers’ compensation.  For example – the office Summer Picnic at the major amusement park is a huge event, and is considered a fringe benefit paid for by the employer.  It is held on a week day when the employees would otherwise be working and the employees are being paid their regular earnings while attending the Summer Picnic.  While doing the Limbo dance, the secretary injures her lower back.  The injury would be covered by workers’ compensation due to the event being paid for by the employer, the employee being encouraged to attend and the employee being paid while participating in the event.

Social events can result in workers’ compensation claims.  The facts surrounding the social event and the facts surrounding what the employee was doing at the time of the social event will be the determining factor in whether or not an injury is a workers’ compensation claim.