Posts Tagged ‘productivity’


The OECD [pdf] has just come in with its latest long-term economic projection. And the results ain’t pretty: they forecast slower growth for the global economy and even slower growth for the developed countries (both under relatively rosy predictions about productivity growth and rising immigration requirements), and even those lower growth rates will be challenged and potentially undermined by the effects of climate change.

Perhaps even more important, they expect the existing trend of growing inequality (as seen in the chart above) to continue through 2060 (as see in the charts below).


The bottom-line message: the best capitalism has to offer is probably over. It’s certainly over for the richest countries, and during the next 50 years it will probably end for the other countries that make up the world economy. Even if the existing institutions hang on (under the suggested policy regime of more globalization, more privatization, more austerity, and more migration), the result will be rising inequality within countries.

How long, then, before we decide an alternative set of economic institutions is necessary?


The top-of-the-page articles today (e.g., in the New York Times) are all about strong job growth, lower unemployment, and higher wages.

All true. But, as Neil Irwin cautions, we should hold the fireworks. His view is not there is a “soft underbelly,” but that “this halting, sluggish recovery has taught us anything, it is to not let our assessments of the economy be driven by hope, but rather by sustained and credible improvement in a wide range of economic data.”

My view is that—notwithstanding recent job growth, falling unemployment, and higher wages—there is still an enormous gap (as reflected in the chart above) between the wealth workers are producing and what they’re receiving in compensation.

That’s why the stock market continues to soar (this morning, the Dow broke 17,000 for the first time ever), benefiting a tiny minority at the top, while the 99 percent continue to fall further and further beyond.



The gap between the growth of productivity (now at 11.4 percent above January 2007) and that of wages (only 1.5 percent higher) continues to widen (according to Reuters).

Is it any wonder, then, that income inequality continues to rise?


Special mention

Student Loans May 11, 2014


This chart, from the 2014 Economic Report of the President [pdf], illustrates the

troubling disconnect between the economy’s productivity and ordinary workers’ wages that has emerged over the last 40 years. As shown in Figure 1-15, real average hourly earnings for production and nonsupervisory employees roughly kept pace with productivity growth in the nonfarm business sector during the early postwar years. But starting around the 1970s, a large gap emerged between overall productivity and an ordinary worker’s take-home pay.


As Steven Rattner explains,

Wage increases haven’t been paltry because the efficiency of the American worker has flagged; indeed, productivity has continued to chug along. But those productivity gains have simply not been passed on to workers. Between 2000 and 2012, productivity rose by 22 percent while wages increased by 7.7 percent. The divergence was particularly great over the last three years of that period – productivity up 4.6 percent and real wages down 1.1 percent. For this failure of the American worker to be rewarded for his growing output, blame a variety of factors, perhaps most important, globalization, which has allowed companies to move production to whatever part of the planet offers the lowest cost labor. In that respect, American workers remain in a race to the bottom.

Actually, it’s American employers who remain in a race to the bottom—and, during 2013, they continued to win.


Matthew O’Brien asked a variety of commentators—”economists, journalists, and think-tankers”—for their favorite charts of the year.

Me, I would have chosen the one offered by Binyamin Appelbaum:

Wage stagnation may be our most important economic problem. Wages are supposed to rise with productivity. As workers produce more, it stands to reason that they will be paid more. But as you can see above, wages have lagged productivity since the 1970s.

What, then, makes it a chart of the year? It’s that nothing whatsoever has been done in 2013 to overturn the trend that actually started in the mid-1970s—or, alternatively, everything has been done to make sure wages continue to stagnate and allow the gap to continue to grow.


Special mention

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According to the National Employment Law Project [pdf], for the period from 2009 to 2012,

  • real median hourly wages declined by 2.8 percent, averaged across all occupations;
  • lower-wage and mid-wage occupations saw significantly bigger declines in their real median wages (by 3 percent or more) thandid higher-wage occupations (by less than 2 percent); and
  • real median wages fell by 5 percent or more in 5 of the top 10 lower-wage occupations: restaurant cooks, food preparation workers, home health aides, personal care aides, and maids and housekeepers.

lowest-wage occupations

The overall decline of wages is even more striking when we take into account the fact the productivity rose by 4.5 percent over the same 2009-2012 period.

As Felix Salmon concludes,

capital is taking more than 100% of real productivity gains, with labor steadily losing out. This, I fear, is the New Normal: OK for investors, bad for workers.


According to Ashok RaoHarvard’s ignorant gay-bashing bloviating right-wing infotainment historian got this one very wrong.

But the data actually collected by Michael E. Porter and Jan W. Rivkin (paywall), based on a survey of nearly 10,000 Harvard Business School alumni about their experiences with location decisions involving the United States, are in fact revealing. In contrast to what we hear on a regular basis from corporations and business lobbyists (which I then hear repeated on a regular basis by students and friends), lower taxes are NOT high on the list of reasons for moving offices and plants outside the United States. Instead, the top 5 reasons are lower wage rates (by a wide margin) and then proximity to customers, better access to skilled labor, higher productivity of labor, and faster-growing markets.

Now, corporations will lobby for anything they can get (including lower tax rates) but, in the end, that’s not the main reason they choose to relocate activities from the United States to other countries. The bottom line: the goal, as always, is higher profits.