Companies Should Boost Pay as Workers Produce More, SHRM Research Shows

The pay-productivity gap is highest in jobs that require abstract skills and advanced education, SHRM finds 

Dana Wilkie By Dana Wilkie April 8, 2019

​Over the past three decades, productivity levels quickly climbed while wages remained relatively flat, according to research released today by the Society for Human Resource Management (SHRM).

Yet that increased productivity hasn't translated into higher wages for some workers, particularly those who are highly skilled, such as IT specialists or construction sales managers, the research report stated.

"What's important here is that while productivity has grown at a resilient clip, the same cannot be said for wages," the researchers wrote. "Real compensation has remained flat over the past three decades …. Workers are simply not getting paid as much relative to what they are producing per hour."

Employers hoping to attract and retain talented workers should consider offering above-market wages to address flat pay, especially in industries where highly skilled workers' wages have remained relatively stagnant.

"Paying wages that are above the market rate can be an important motivating force for your existing employee base to remain in your organization," the report stated. "While many firms might balk at the thought, now, more than ever, they must reconsider their priorities."  

Wages Have Stayed Flat

The research report, titled The Pay-Productivity Gap: Why Employers Benefit from Reducing It, examined pay data from the U.S. Bureau of Labor Statistics between October 2018 and January 2019. SHRM also surveyed 1,010 people in the United States from Jan. 28 to Feb. 2, 2019.

Advancements in technology, capital investment by businesses, improved managerial skills, improved worker skills and more-efficient production have all boosted productivity, the report stated.

The Pay-Productivity Gap Across Industries

While productivity has grown at a resilient clip, the same cannot be said for wages. Real compensation has remained flat over the past three decades. Many of the industries with the largest gap have experienced high growth in productivity.

​Industries with the Highest
Pay-Productivity Gap

Industries with the Lowest
Pay-Productivity Gap
​Computer and peripheral equipment manufacturing
​Chemical and allied products merchant wholesalers
​Semiconductor and other electronic component manufacturing
​Places that serve alcoholic beverages, like bars and restaurants
​Electronics and appliance stores
​Pharmaceutical and medicine manufacturing
​Professional and commercial equipment and supplies merchant wholesalers
Metal and mineral (except petroleum) merchang wholesalers​
​Wireless telecommunications carriers (except satellite)
Natural gas distribution​

Source: Society for Human Resource Management.

The Pay Gap by Industry

The report identified industries with high gaps between pay and productivity as those where workers conduct abstract tasks, such as the technology industry or higher education.

"We found that the industries that have the largest increases in productivity without any corresponding increase in pay were predominantly tech industries," the researchers noted. "Interestingly, they also experienced the largest amounts of growth over the past few decades."

Pay Gaps by Education

The research also examined whether the pay-productivity gap can be explained by differences across workers' education. To study this, the researchers linked education data from the American Community Survey, conducted by the U.S. Census Bureau, with industry data on pay and productivity. They found that industries with larger gaps between pay and productivity have workers with higher rates of college education. 

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"These findings are unsurprising given the high correlation between workers with a college education and those performing abstract tasks," the researchers wrote.

In summary, the researchers concluded, "we see that industries with employees who are more highly educated and perform more abstract tasks have experienced growths in productivity over time that have not been matched by increases in wages."

What Can Be Done

Paying wages that are above the market rate can convince employees to remain with their employer, especially at a time of historically low unemployment, the researchers wrote.

"Industries [with high pay-productivity gaps] are generally more likely to be able to afford to follow this strategy, as they have the gains of high productivity to draw on for more resources," said Liz Supinski, SHRM's director of research products, research and insights. "But any organization in any industry might choose to spend more on employee compensation."

Wrote the researchers: "Now, more than ever, [employers] must reconsider their priorities. According to just one report, by 2030 global need for high skill tech talent will be 85 million people short. Every lost employee or missed hiring opportunity won't necessarily be made up in a few months, or even a few years."

The research also found that employees who perceive their employer as trying to reduce the wage gap are less likely to quit, even if they perceive that they're working long hours. 


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