Recently, Don Boudreaux called Robert Reich sophomoric for suggesting that productivity (as the BLS measures it) and real wages should move in tandem. Even an intro student could tell you that wages are determined by workers' marginal product, not their average product! The conclusion:
"It, and it alone, should label him forever as someone not to be trusted
to analyze any economic matter, including the economics of minimum-wage
Strong words coming from a guy that just a year ago (in an op-ed written with grad student Liya Palagashvili) was adamant that we should expect from theory that the market "links pay to productivity," which throughout the op-ed is the same BLS measured average product that Reich is referring to!
My view is this:
2015 Don is right about theory.
2014 Don and Liya are right about empirics.
This combination is a point in favor NOT of the idea that wages are determined by average products, but of the idea that the production function is something like Cobb-Douglas. When accounting for all compensation (not just wages) the labor share stays fairly constant and when accounting for compensation and deflating the nominal figures correctly average product grows with wages (which are equal to marginal product). These are both properties of a Cobb Douglas production function (although Bob Murphy has a really nice post on how other functional forms could produce a divergence between average product and wages that many people allege is happening).
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