"First, Figure 1—‘net decoupling’—is based on an average measure. As a result, it captures the total compensation going to workers in the economy divided by the number of hours worked. By contrast, Figure 2 is based on a median, specifically the hourly wage of the middle worker. The two therefore diverge when the average is pulled up (and the median isn’t) when pay grows very strongly at the top, as it has in the past ten years.
Second, Figure 1 looks at total compensation rather than just wages. This means it includes things like employer pension contributions and employer National Insurance Contributions (NICs), which Figure 2 doesn’t. As such, there’s a reasonable argument that Figure 1 is a better gauge of the complete rewards derived by workers. Again, recent years have seen a widening gap between these two measures. As non-wage aspects of compensation have grown significantly, compensation has grown faster than wages.
The third difference, and the most technical, is that the two measures are calculated using different inflation indices. The first, used for net decoupling, is calculated using the GDP deflator, while the second uses the Retail Prices Index (RPI). What’s the difference and which one is right? The answer is that it depends what you’re analysing. If you want to compare productivity and pay fairly, you should use the same deflator for both—that is, the GDP deflator. But if you want to know how the purchasing power of pay is changing over time, you want to use the RPI. These two measures have moved apart very slightly in recent years. As the paper acknowledges, this trend is hard to interpret."
