productivity and labor compensation

This post will be much more practically oriented than most of this blog, and a premium is placed on brevity.

It is occasionally noted (though often obscuring important details) that

• cash income
• per household
• deflated with consumer prices (especially if badly chained)

has, in my lifetime, lagged badly behind

• economic production
• per hour worked
• deflated with the GDP deflator

in the United States.  Especially through 2008, almost all of this is because of

• an increasing portion of labor compensation becoming "in-kind", in part for tax reasons,
• decreasing household size, and
• chaining effects and increasing prices of imports relative to exports.

Our worsening terms of trade are certainly interesting, and a reasonable target for policy attention, but most sources that compare the first series to the second series try to imply that the difference means something very different from what it does.

Now, in the last five years labor compensation has lagged behind production in common units of account; this is frequently true early in the business cycle, and the "beginning" of this business cycle has been frustratingly longer than usual, but it's premature to diagnose a secular shift.