Posts Tagged ‘productivity’

ERP-productivity

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.

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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.

BInyaChart

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.

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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.

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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.

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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.

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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.

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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.

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