Posts Tagged ‘productivity’

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Neil Irwin would like us to believe there’s a mystery surrounding the U.S. economy. But it’s not what one might expect:

The real mystery. . .isn’t why wages are rising so slowly, but why they’re rising so fast.

Really?!

In Irwin’s model, workers’ wages should rise at the same rate as productivity combined with inflation. And he’s worried that wages are rising faster than that right now.

Except they’re not. And they haven’t been for decades.

As is clear from the chart at the top of the post, the change workers’ wages (hourly wages for production and nonsupervisory workers) has often surprised the rate of growth of per capita output (GDP per capita) for long periods of time. But when we add in inflation (according to the Consumer Price Index), only rarely in recent decades have wages surpassed the sum of output and price changes (during some months of some recessions). In general, workers’ wages have fallen short—in many cases, by 4 and 5 percentage points.

And that’s been going on for decades, which is why the labor share of national income has been falling. Workers produce more, prices go up, and wages rise by much less.

Even recently, after a short period when wages were rising faster than productivity plus inflation (from the second quarter of 2015 to the third quarter of 2016), that trend has continued. In the first quarter of 2017, when wages rose at an annual rate of 2.4 percent, the rate of growth of output per capita and inflation was higher, at 3.9 percent.

For Irwin, as for most mainstream economists, the real mystery is why productivity has been growing so slowly—because they cling to the idea that everyone, including workers, will benefit if only they could find some way to boost productivity.

But that ship sailed long ago. Workers’ wages haven’t matched the growth of the value workers produce for decades. And there’s no reason to expect that trend to change in the foreseeable future—not when employers can get away with paying workers as little as possible.

As I see it, the real mystery is why Irwin and mainstream economists continue to hold to the myth that workers will benefit from rising productivity.

It doesn’t take a Sherlock Holmes (or, if you prefer, Kurt Wallander) to figure out that, if they continue to focus on productivity and its supposed benefits, they can try to keep things just as they are right now.

But the rest of us know the existing economic institutions have failed—and failed miserably for decades now—and that radically new ways of organizing the economy have to be imagined and enacted.

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First, it was conspicuous consumption. Then, it was conspicuous philanthropy. Now, apparently, it’s conspicuous productivity.

According to Ben Tarnoff,

the acquisition of insanely expensive commodities isn’t the only way that modern elites project power. More recently, another form of status display has emerged. In the new Gilded Age, identifying oneself as a member of the ruling class doesn’t just require conspicuous consumption. It requires conspicuous production.

If conspicuous consumption involves the worship of luxury, conspicuous production involves the worship of labor. It isn’t about how much you spend. It’s about how hard you work.

And that makes a lot of sense, for at least two reasons. First, CEO salaries in the United States continue to be much higher than average workers’ pay—276 times as much in 2015. CEOs need to publicize the long hours they work in order to attempt to justify the large gap between what they take home and what they pay their workers. As Tarnoff explains, “In an era of extreme inequality, elites need to demonstrate to themselves and others that they deserve to own orders of magnitude more wealth than everyone else.”

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The problem, of course, is many American workers are working long hours these days. According to the Bureau of Labor Statistics, in 2015, employed persons ages 25 to 54, who lived in households with children under 18, spent an average of 8.8 hours working or in work-related activities and the rest sleeping (7.8 hours), doing leisure and sports activities (2.6 hours), and caring for others, including children (1.2 hours ).

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And, on a weekly basis (taking into account public holidays, annual leaves, and so on), U.S. workers put in almost 25 percent more hours—or about an hour more per workday—than Europeans.

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The other reason why conspicuous productivity matters is because, in comparison to the First Gilded Age (when Thorstein Veblen first invented the term conspicuous consumption), a larger share of the surplus captured by the top 1 percent takes the form of labor income during the Second Gilded Age. They get—and deserve—that large and growing share because they work long hours.

The problem, of course, as I showed the other day, that composition of income has changed since 2000. Since then, the capital share of their income has bounced back. Thus, the “working rich” of the late-twentieth century are increasingly living off their capital income, or are in the process of being replaced by their offspring who are living off their inheritances.

This was my conclusion:

It looks then as if those at the top have either turned into or been replaced by rentiers, thus joining the existing owners of capital at the very top—thereby mirroring, after a short interruption, the structure of inequality last seen during the first Gilded Age.

That’s perhaps why conspicuous productivity was invented. Increasingly, those at the top are able to capture a large share of the surplus not because they do, but because they own. But if they can hide that by boasting about the long hours they work, they can attempt to defend their class power.

Or so they hope. . .

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Millions of workers have been displaced by robots. Or, if they have managed to keep their jobs, they’re being deskilled and transformed into appendages of automated machines. We also know that millions more workers and their jobs are threatened by much-anticipated future waves of robotics and other forms of automation.

But mainstream economists don’t want us to touch those robots. Just ask Larry Summers.

Summers is particularly incensed by Bill Gates’s suggestion that we begin taxing robots. So, he trots out all the usual arguments, hoping that at least one of them will stick. It’s hard to distinguish between robots and other forms of automation. Robots and other forms of automation produce better goods and services. And, of course, automation enhances productivity and leads to more wealth. So, we shouldn’t do anything to shrink the size of the economic pie.

This last point has long been standard in international trade theory. Indeed, it is common to point out that opening a country up to international trade is just like giving it access to a technology for transforming one good into another. The argument, then, is that since one surely would not regard such a technical change as bad, neither is trade, and so protectionism is bad. Mr Gates’ robot tax risks essentially being protectionism against progress.

Progress, indeed.

What mainstream economists like Summers fail to understand is that not touching the robots—or, for that matter, international trade—means keeping things just as they are. It means keeping the decisions about jobs, just like the patterns of international trade, in the hands of a small group of employers. They’re the ones who, under current circumstances, appropriate the surplus and decide where and how jobs will be created—and, of course, where they will be destroyed. Which, as I explained last year, is exactly how international trade takes place.

And because employers, now and as Summers would like to see the world, are the ones who are allowed to retain a monopoly over jobs and trade, they also decide how the economic pie is distributed and redistributed. Tinkering around the edges—with the usual liberal shibboleths about the need for “education and retraining”—doesn’t fundamentally alter the fact that workers remain subject to decisions about technology and trade in which they have no say. Workers are thus forced to have the freedom to adjust, with more or less government assistance, to decisions taken by their employers.

And to sit back and admire, but not touch, the growth in productivity.*

 

*And that’s pretty much what Brad DeLong also recommends in making, for the umpteenth time, the argument that today, the world’s population is, on average, many times richer than it was during the long preceding age—because both average wealth and consumer choice have increased. Delong, like Summers, doesn’t want us to touch the “innovations that have fundamentally transformed human civilization.”

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During the recent presidential campaign, Donald Trump promised to revitalize American manufacturing—and bring back “good” manufacturing jobs. So did Hillary Clinton.

What neither candidate was willing to acknowledge is that, while manufacturing output was already on the rebound after the Great Recession, the jobs weren’t going to come back.

As is clear from the chart above, manufacturing output has grown (by about 21 percent) since the end of the recession and is now nearing pre-recession levels (although still down from its pre-crash level by about 5 percent). But employment in the manufacturing sector is only up a small amount (8 percent) since its post-crash low and is still lower, by about 1.5 million jobs (or 11 percent), than in December 2007.

So, even if manufacturing production continues to grow, manufacturing jobs won’t (at least at the same rate). That’s because productivity in manufacturing continues to increase—as employers decide to change work rules, reorganize the factories, and introduce robotics and other forms of automation. Manufacturing workers, in other words, are being forced to produce more with less.

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That trend—of employment not matching the growth in output—just represents a longer term tendency in American manufacturing. If we start back in 1990 (as in the chart above, indexed to January 1990), output has increased 75 percent while employment has actually fallen by more than 30 percent.

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And, of course, employers have made that situation work for themselves, especially in recent years. Since the crash, corporate profits in manufacturing have rebounded spectacularly.

As long as workers have no say in how production is organized—including the technologies that are used and the surplus that is created—we can expect both manufacturing production and profits to increase while leaving workers and their jobs behind.

No matter who the president is.

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Eduardo Porter is right: the “long, painful slog out of the Great Recession” hasn’t been accompanied by any kind of shared prosperity.

As the chart above reveals, the share of income going to the bottom 90 percent of U.S. households has actually fallen since 2007 (from 50.3 percent to 49.5 percent)—and, in recent years, remains far below what it was (67.4 percent) in 1970.

In other words, the so-called recovery looks a lot like the unequalizing dynamic of the U.S. economy in the years and decades leading up to the Great Recession. Those who work for a living have been getting less and less, while those at the top have managed to capture and keep the growing surplus.

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We’re not just talking about the white working-class. Wages “for all groups of workers (not just those without a bachelor’s degree), regardless of race, ethnicity, or gender”, have (since 1979) have lagged the growth in economy-wide productivity.

And that’s just in terms of income. As Porter explains,

by many other metrics, Americans’ well-being remains pretty low. Whether it is life expectancy or infant mortality, incarceration or educational attainment, countless statistics offer a fairly dark picture of the American experience. It is a picture of prosperity that consistently leaves large numbers of Americans behind.

The United States suffers the highest obesity rate among the 35 industrialized countries that make up the Organization for Economic Cooperation and Development. In terms of life expectancy at birth, it ranks 10th from the bottom. America’s infant mortality rate has dropped by half since 1980. Still, today Turkey and Mexico are the only countries in the O.E.C.D. to report a higher share of dead babies. Infant mortality fell faster in almost every other industrialized country.

Mainstream economists, politicians, and pundits may prefer to focus on the first part of Charles Dickens’s famous opening sentence. But that’s only true for the tiny group at the top. For everyone else, it really is—and has been for decades—”the worst of times.”

Cartoon of the day

Posted: 28 October 2016 in Uncategorized
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We’ve just learned that the corporate payouts—dividends and stock buybacks—of large U.S. firms are expected to hit another record this year. At the same time, John Fernald writes for the Federal Reserve Bank of San Francisco that the “new normal” for U.S. GDP growth has dropped to between 1½ and 1¾ percent, noticeably slower than the typical postwar pace.

What’s the connection?

Fernald, as is typical of many others who have concluded the United States has entered a period of slow growth, blames the “new normal” on exogenous events like population dynamics and education.

The slowdown stems mainly from demographics and educational attainment. As baby boomers retire, employment growth shrinks. And educational attainment of the workforce has plateaued, reducing its contribution to productivity growth through labor quality. The GDP growth forecast assumes that, apart from these effects, the modest productivity growth is relatively “normal”—in line with its pace for most of the period since 1973.

What Fernald and the others never mention is that American companies’ embrace of dividends and buybacks comes at the expense of business investment, which is an important contributor to worker productivity and long-term economic growth.

In other words, what they overlook is the possibility that the current slowdown—which, “for workers, means slow growth in average wages and living standards”—may be less a product of exogenous events and more the way the U.S. economy is currently organized.

When workers produce but do not appropriate the surplus, they are victims of a social theft. And then, when a larger and larger portion of of the surplus is distributed to shareholders (both outside investors and corporate executives)—that is, the tiny group at the top who share in the booty—workers are, once again, made to pay the cost.