Cartoon of the day

Special mention

Chart of the day

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“Some people think it’s a law that when productivity goes up, everybody benefits,” says Erik Brynjolfsson, an economics professor at the Massachusetts Institute of Technology. “There is no economic law that says technological progress has to benefit everybody or even most people. It’s possible that productivity can go up and the economic pie gets bigger, but the majority of people don’t share in that gain.”

Indeed, that possibility—of growing productivity and stagnant wages—has been the economic law for the past three decades.

Chart of the day

According to a new report from the International Labor Organization, Global Wage Report 2012/13: Wages and Equitable Growth,

Between 1999 and 2011 average labour productivity in developed economies increased more than twice as much as average wages (see figure 11). In the United States, real hourly labour productivity in the non-farm business sector increased by about 85 per cent since 1980, while real hourly compensation increased by only around 35 per cent. In Germany, labour productivity surged by almost a quarter over the past two decades while real monthly wages remained flat.

The global trend has resulted in a change in the distribution of national income, with the workers’ share decreasing while capital income shares increase in a majority of countries. Even in China, a country where wages roughly tripled over the last decade, GDP increased at a faster rate than the total wage bill – and hence the labour share went down.

Cartoon of the day

Special mention

 

Why everything you’ve been told about the economy by Greg Mankiw and Edward Conard is wrong

Greg Mankiw recommends Edward Conard’s book, Unintended Consequences: Why Everything You’ve Been Told About the Economy Is Wrong, especially Figure 1-6 on page 22, which Mankiw finds “quite illuminating.”

Note the neoclassical assertion that “wages reflect productivity.” Therefore, in their view, median earnings for U.S. workers have stagnated not because wages have been kept low by employers but because the labor force has shifted to “demographics with lower productivity.”

This is part of Conard’s “brief history of the U.S. economy,” in which he seeks to deflect attention from Wall Street and inequality as possible causes of the financial crash (and thus to undermine calls to regulate financial institutions and to create a more equitable distribution of income) in order to show that financial innovation and economic inequality are in fact necessary conditions for successful innovation and increased productivity.

Mind the gap

“Mind the Gap” is the title of my presentation at the upcoming Volcano symposium. It’s also the subject of an important new piece of research by Larry Mishel and Kar-Fai Gee.

Their argument is that the key to explaining growing income inequality in the United States is the growing gap between productivity and wages. What they find is that, from the mid-1970s until 2011, productivity increased by more than 80 percent while wages (measured as real median hourly compensation) only increased by 10.7 percent.

It is important to remember that, in U.S. national income accounts, “wages” include the pay of CEOs and day laborers alike. Even then, the gap between productivity and wages continued to grow throughout the 1973-2011 period.

So, what explains the growing gap? Mishel and Gee focus on three “wedges”: (a) an overall shift from labor income to capital income, (b) increasing inequality between top income recipients (such as CEOs and top earners in finance) and everyone else, and (c) the terms of trade, i.e., the faster price growth of things workers buy relative to what they produce.

And their conclusion?

Productivity growth has frequently been labeled the source of our ability to raise living standards. This is sometimes what is meant by the call to improve our “competitiveness.” In fact, higher productivity is an important goal, but it only establishes the potential for higher living standards, as the experience of the last 30 or more years has shown. Productivity in the economy grew by 80.4 percent between 1973 and 2011 but the growth of real hourly compensation of the median worker grew by far less, just 10.7 percent, and nearly all of that growth occurred in a short window in the late 1990s. The pattern was very different from 1948 to 1973, when the hourly compensation of a typical worker grew in tandem with productivity. Reestablishing the link between productivity and pay of the typical worker is an essential component of any effort to provide shared prosperity and, in fact, may be necessary for obtaining robust growth without relying on asset bubbles and increased household debt.

But we have to keep in mind that the conditions of the period from 1948 to 1973 created the growing gap in the following period. So, instead of attempting to recreate the link between productivity and pay in the postwar period, we can move in a different direction and not exclude those whose work leads to increased productivity from deciding what to do with what they produce.

That would be a real way of minding the gap.

Pig in a poke

The newspaper headlines this morning are all trumpeting the decline in the unemployment rate to 8.3 percent.

But let’s stop for a moment and consider what this actually means.

First, an 8.3 percent rate in January 2012 means that the unemployment rate has stayed above eight percent for 37 straight months, by far the longest stretch of high unemployment since the First Great Depression.

Second, that’s the official (U3, seasonally adjusted) unemployment rate. Not seasonally adjusted, the rate is 8.8 percent. And the U6 unemployment rate (which includes discouraged workers and those working part-time jobs who actually want full-time jobs) is much higher: 15.1 percent (seasonally adjusted) and 16.1 percent (not seasonally adjusted).

Third, while the official unemployment rate fell, the percentage of workers who have been unemployed for 27 weeks or more actually rose: to 42.9 percent (seasonally adjusted).

Fourth, also according to the Bureau of Labor Statistics, real average hourly earnings (for production and nonsupervisory employees) fell 1.6 percent, seasonally adjusted, from December 2010 to December 2011. During that same period, labor productivity (in the nonfarm business sector) grew 0.5 percent. It rose even more in manufacturing: by 1.7 percent. The result is that unit labor costs in manufacturing, which fell 4.2 percent in 2010, fell once again (by 1.3 percent) in 2011.

Put this all together and it’s a pig in a poke—of, if you prefer, a pig and a poke—for American workers.

Double-dip profitability

U.S. capitalists are making their way through the double-dip recession to a quite profitable recovery.

Most Americans are facing another round of job losses, real wage declines, furloughs, and cuts in education and social services. It’s a second dip in the recession for them. But corporate profits continue to rise.

How? It’s clear from the latest data from the Bureau of Labor Statistics: productivity is rising much faster than hours worked and hourly compensation. So, unit profits are soaring.

Here are the numbers for nonfinancial corporations during the first quarter of 2010:

There’s no mystery here. Those who have jobs are working longer hours and, with the threat of being laid off, they’re producing much more than before—while their real hourly compensation declines. The result is that profits are rising, with few new jobs being created. In Marxian terms, the rate of exploitation is going up.

Clearly, capitalists in the United States are riding the backs of workers to successfully restore their profitability.

Disciplining capitalist labor

Capitalism has a wide variety of ways of disciplining workers. One of them is guard labor. Another is unemployment.

Today, the Department of Labor reports that

In the week ending Jan. 30, the advance figure for seasonally adjusted initial claims was 480,000, an increase of 8,000 from the previous week’s revised figure of 472,000. The 4-week moving average was 468,750, an increase of 11,750 from the previous week’s revised average of 457,000.

So, the overall unemployment rate is widely expected to have risen, when the numbers are released tomorrow.

And now, through a report from the Bureau of Labor Statistics, we see the effects: labor productivity increased at a 6.2 percent annual rate during the fourth quarter of 2009, while unit labor costs in nonfarm businesses fell 4.4 percent—a result of the increase in productivity far outpacing the increase in hourly compensation.

That’s capitalism’s own unique way of restoring profitability and attempting to solve its crises.

Economist of the day

Because Europeans work shorter hours, they have only 70% of the real market income per person as Americans (adjusted for differences in prices across countries). As a result Europeans face their holidays from a position of poverty rather than abundance.

Those long European holidays are pitiful. They are inefficient, they hurt consumers and they reveal the tedium of European family life. And because Europeans are relatively poor, they cannot afford the frequent upscale vacations that many Americans take for granted.

Robert J. Gordon, in defense of the Economist’s proposition that “Europeans would be better off with fewer holidays and higher incomes.”

That’s Gordon’s justification of why Americans, on average, work longer hours, at lower pay, with worse health care and more insecurity—in short, at a higher rate of exploitation—than the citizens of any other industrialized nation.