Abstract

We document the productivity-pay decoupling in the US nonfarm business sector from 1973Q1 through 2026Q1 using publicly available FRED quarterly data, decomposing the aggregate gap into three components that the prior literature has examined separately but rarely together: the within-sector gap, the manufacturing-versus-services differential, and the divergence between mean compensation and median real earnings. Over the 53-year sample, aggregate labor productivity has grown by 158.4 percent and aggregate real compensation per hour by 50.7 percent, producing a cumulative gap of 107.7 percentage points consistent with the magnitudes documented by . The labor share index has fallen from 100 in 1973Q1 to 86.0 in 2026Q1, a 14.0 percentage point decline concentrated in the 2003-2012 sub-period. Within manufacturing alone, our 39-year sub-sample shows productivity growth of 123.0 percent against real compensation growth of only 28.8 percent, a within-sector decoupling of 94.2 percentage points—substantially more extreme than the aggregate. The median real weekly earnings series has grown by only 12.2 percent since 1979Q1, indicating that the bulk of the aggregate real compensation increase has accrued to workers above the median. Decade-by-decade analysis reveals that the gap was largest during the 2003Q1–2012Q4 period (+1.42 percentage points per year, coincident with the steepest labor share decline) and smallest during the 2013Q1–2022Q4 period (+0.28 percentage points per year, coincident with tight labor markets). The post-2022 period (2023Q1–2026Q1) shows elevated growth in both productivity (2.62 percent per year) and real compensation (2.05 percent per year), with a moderate gap of 0.57 percentage points per year. We discuss what the decomposition implies for the management literature on internal compensation structures, for the contemporary debate on the labor share, and for the projection of compensation dynamics in the post-COVID labor market.