I watched a small bit of his testimony before Congress by the new Fed chairman, Jerome Powell. He is a banker with a law degree. The Fed is the US central bank that sets monetary policy. And monetary policy consists basically in controlling the amount of new money flows into the economy, while setting short-term interest rates. Those two activities are the fundamental drivers of economic growth, ceteris paribus (holding everything else constant).

During the questioning, Sen. Corker (R-TN) asked Powell this excellent question: “Why hasn’t American workers’ wages kept up with productivity?” He noted that productivity is up about 72 percent in the past 30 years, while wages are up only 9 percent.

Powell responded with a vague answer that related to the lack of educational opportunities in the U.S. in general, and how our universities have not kept pace with technology.

He could have given a much better answer with only about 15 minutes of research time on the Internet. Also, as chairman of an institution with approximately 400 PhD economists in residence, he could easily have directed all the difficult economic questions to them so that he might be better prepared for legislators who know even less about the subject than do banker/lawyers.

Here is what I found in my 15 minutes on the Fed’s huge website (FRED, maintained by the Federal Reserve Bank of St. Louis).

While it is true that wages have not kept pace with productivity gains (output per worker), it is also true that total compensation (i.e., wages plus benefits (401(k) contributions, stock options, bonuses, vacation time, education, and health care costs) have done much better. When benefits are considered, the gap between the two measures closes by 90 percent. That means that real (net of inflation) productivity has increased by 1.9 percent annually, in the past 30 years, while wages plus benefits have increased by 1.7 percent per year. I did not inquire into issues such as the costs of making the workplace cleaner and safer.

Without digging deeper, we also know that executive compensation has outstripped wages by a huge amount. That should tell us that corporate boards love CEOs more than CEOs hate workers. Those relationships are not likely to change any time soon.

The real issue that most workers need to know more about is this: How can I close the remaining gap, or better, can I shift it in my favor?

The answer to that question rests squarely with 401(k) or other retirement packages. Every worker at all levels should max out his or her contribution. A few years ago, that contribution was set at 8 percent of salary. At an average compound annual rate of return of 7 percent, the typical worker making $50,000 can increase his pay by $280 per year. If you are part of a 2-income family, you can do better. And if you start a home business and work at it, you have a good chance of retiring with an income that will make you a lot more independent when you eventually retire.

The bottom line is this: Work smarter, save more, and retire on your terms. Put another way, don’t expect your employer or the government to close the gap for you. Hell will freeze over first.