At Work

Can Rising Inequality Be Explained by Falling Worker Productivity? – US News

Here is a key point, consumers benefit from what may not show up in the paycheck. And for the politicians; it’s the global economy stupid‼️

Here is an interesting question; can lower prices as a result of competition offset lower wage gains? In other words, if more government transfers are considered to raise individuals from poverty (which they are), can lower prices for goods and services be counted as rising wages?

imageWhat consumer goods do average people now gobble up that previously were unaffordable even with continuous wage growth?  If sustained wage growth was the only measure of economic improvement, wouldn’t a lot of businesses we now frequent be gone for simply a lack of customers?

Because the investor has seen a greater growth in wealth than non-investors, does that mean all economic benefit is unequal? If workers, say through unions, had greater leverage to gain higher wages, would the resulting higher prices for goods and services offset the wage gains and would that disproportionately adversely affect lower-income Americans?

Guess what❓ I don’t know the answers to these questions and neither do the politicians which suggests the cause of inequality is not as simple as we are being told. The millennials especially should think about this stuff.

Whether productivity is rising or falling depends on whom you ask, and that’s a problem for workers.

The Great Productivity Debate

Workers are producing more, and they should reap the rewards.

Now that politicians on both left and right have agreed that inequality has increased, the argument turns to the question of why. Both sides point to worker productivity as a factor, but the two sides disagree on the fundamental question of whether productivity is rising or falling.

Recently, from the right, we hear that worker productivity has actually fallen. The Wall Street Journal, for example, calls out “abysmal” levels of U.S. productivity.
But from the left, we hear that productivity is rising but the gains are being taken from workers by senior executives and investors.

The analysis of productivity is politically motivated. After all, say conservatives, how can workers reasonably expect to be paid more if they are less productive? If you are feeling the lash of inequality, you have only yourself to blame.

How can we make sense of this debate? Can productivity be going up and down at the same time?

Productivity seems like it should be a simple concept. How many widgets can a worker produce in a given amount of time? But it is not so simple, and we need to look a little closer at how it is measured.

Productivity is indeed measured as the value of the widgets (or services) produced divided by the labor it takes to produce them. Outputs are measured in dollars: What would the widgets fetch in the market? Labor is measured in hours.

Take a simple case: a worker who makes 10 widgets in an hour. Each widget sells for a dollar. So productivity is simply 10 dollars divided by one hour – or simply, 10.
Next year, a high-priced consulting firm comes in, and reorganizes the factory. Now each worker can produces 12 widgets an hour. But other consultants have shared the same insights across the entire widget industry. Every company is producing 12 widgets per hour, and the price per widget falls to 80 cents. Productivity is now only 9.6.

That’s right. Even though every worker is now producing more – 20 percent more, in fact – “productivity” has fallen.

This example shows that productivity depends on your point of view. In this scenario, productivity has indeed fallen, from the investor’s point of view. But from the worker’s point of view, productivity has risen.

We see this contradiction over and over again in our economy. It’s on the factory floor, in the call center, at fast food stores and mass-market retailers. It’s even in the ranks of mid-management: Over the past few decades information technology has made it possible to run global corporations with far fewer middle managers. But that advantage has mostly been competed away (particularly when productivity gains come from information technology).

It wasn’t always like this. Let’s step into the time machine and go back to 1960, before globalization overtook the U.S. consumer electronics industry, for example. (Remember Zenith and RCA?) Then, as workers became more efficient, the price didn’t drop nearly so much. Investors got to enjoy the extra productivity instead of seeing it competed away. And (partly because most private sector manufacturing workers were unionized), wages went up rather than down.

These examples show how far removed the economic concept of productivity is from the common-sense meaning of the term. In both cases, workers delivered more product or service per hour’s work. They are more productive, in common-sense terms. But in one context, the productivity gain sticks, providing financial benefit to the worker and employer. In the other case, the productivity gain disappears into the maw of global competition, benefiting consumers but not producers.

The people who run companies and those who sit on boards have learned to be skeptical about spending money just to create a short-lived productivity edge that will soon be competed away. Instead, the money gets redirected to buy back shares from the investing public. This has the effect of making the earnings per share grow (by reducing the number of shares in the public’s hands). But total earnings are not growing, and productivity is just being concentrated in fewer and fewer hands.

The combination of intense global competition and the loss of negotiating power on the part of workers has undermined the common-sense understanding of productivity. But our history as a nation, and the social contract that keeps us together, is not easily set aside. We don’t have a sustainable economy without this social contract.

Source: Can Rising Inequality Be Explained by Falling Worker Productivity? – US News

Advertisements

8 replies »

    • The Dummycrats of course, who do they think is going to pay for the free healthcare and free education and all the other free stuff. The rich business owners and corporations will just pass on the higher cost to all of us in higher prices for goods and services. The Ripoffagains are not much better, but at least they leave me with more money in my pocket and I can make the choices I need to for my family. I do not like to have the government make the choices for me and that is what Hillary and Bernie want to do.

      Like

      • You got that one wrong JRATT – in fact the Teapublikkkans want to repeal modern healthcare progress, they want to rescind Roe v. Wade, they want to and are restricting minority voting rights – they are too uniformed to know that Federal funds for Planned Parenthood cannot be used for abortions – listen to the supporters of Trump and Cruz – they want to “Make America White Again” – the Teapublikkkans are nothing more than bigots and racists and Donald is their spokeman – Ted Cruz just won’t say it – Cruz is a domestic political terrorist hiding behind Trump – compared to Trump, he is gutless – they oppose a pathway to citizenship for Latino immigrants because they might vote Democratic – the Teapublikkkans want public schools segregated again as in the 40’s and 50’s – they want to rescind all LGBT social progress – back to the 50’s again – all four of the remaining Teapublikkkan clowns will send our troops back into the Middle East to fight and die for absolutely nothing for the third time – an unwinnable conflict which is absolutely unaffordable – vote Teapublikkkan and you are voting for another war and another recession – how many times do you have to see failure before you change your mind? – do you really want to see trickle down economics fail again? – insanity is repeating the same acions over and over again and expecting different results

        Like

    • Wilson, You sure have been drinking the left’s kool-aid way too long. There is not way to rescind Roe v Wade, the SCOTUS would overturn it. We should not be using tax dollars funding Planned Parenthood it was started by a racist who wanted to stop blacks from reproducing, read her rants in the 20’s and 30’s. Insanity is believing that the Dummycrats or the Ripoffagains will do anything but take from the taxpayers to make their friends and family richer. It is all smoke and mirrors out of D.C. fooling the masses that the politicians are going to solve all our problems. Hell they have created most of them.

      Like

  1. Sorry, all the example provided suggests is that worker productivity outside the United States (or in some sectors, within the United States where added capital is deployed) may be improving or the costs of other inputs into the productive process may be less.

    Here’s the example: “… Take a simple case: a worker who makes 10 widgets in an hour. Each widget sells for a dollar. So productivity is simply 10 dollars divided by one hour – or simply, 10. Next year, a high-priced consulting firm comes in, and reorganizes the factory. Now each worker can produces 12 widgets an hour. But other consultants have shared the same insights across the entire widget industry. Every company is producing 12 widgets per hour, and the price per widget falls to 80 cents. Productivity is now only 9.6. That’s right. Even though every worker is now producing more – 20 percent more, in fact – “productivity” has fallen. …”

    I see this as two separate transactions – first, an increase in worker productivity or output per hour worked, and second, another action, the change in price paid per widget, that apparently reflects a reduced cost for the other inputs, or a reduced profit margin per widget. Just as important, where the supply of widgets increases 20% (as it does here, apparently), why is anyone surprised to see the price of widgets fall. Take gasoline, oil, natural gas in today’s economy for comparison.

    So, I do not agree with the conclusion that: “… These examples show how far removed the economic concept of productivity is from the common-sense meaning of the term. In both cases, workers delivered more product or service per hour’s work. They are more productive, in common-sense terms. But in one context, the productivity gain sticks, providing financial benefit to the worker and employer. In the other case, the productivity gain disappears into the maw of global competition, benefiting consumers but not producers. …”

    Obviously, they got an F in micro-economics, if they took the course at all.

    Like

  2. I never really thought about how the studies figured productivity. The only way to compare apples to apples is to take a simple dollar figure divided by workers. The question is which dollar figure to use (cost, profits, gross earnings, wages, units made). Do robots get counted as a worker?

    I also lived during the high inflation years. There are two generations now that have not seen bad inflation. I can’t convince my son that one day hyperinflation will be back. When that day happens, the Great Recession is going to look like the good old days.

    Like

  3. I remember paying over $500 for a RCA 25″ CRT Console TV back in 1977. In Oct 2014 I purchased a Sanyo 40″ HDTV for $269. I do not want to go back to 1977 prices for electronics or anything else. There are many more choices in the market place today than in 1980.

    Even cars for many are cheaper today than they were in 1980. And the cars today are safer, get better mpg and need fewer repairs. I remember cars in the 70’s and 80’s that needed complete engine rebuilds at 75,000 miles.

    When you look at hours worked to pay for a car. For me a new car = 1.5 times my yearly income, about the same as it was in 1980 and I am retired.

    For my sister who’s income has increased 600% since 1980 the cost of a new car for her has gone down from 90% of her yearly income to 25%.

    But if you listen to the talking heads on TV and in government, we are all worse off today, because of all the rich 10% ‘ers, who have kept us all down.

    GIVE ME A BREAK.- from all their stupid studies that tell me how bad things are in 2016.

    I remember the high inflation rates we lived with right out of high school, with low pay, because we were just starting out.
    74 -11%, 75 – 9.1%, 76 – 5.8%, 77 – 6.5%, 78 – 7.6%, 79 – 11.3%, 80 – 13.5%, 81 – 10.3%. I remember people buying houses with mortgage rates of 18%.

    I do not want to go back to the way things were 40 years ago, but many of the people in control of this country, or want to be in control of this country do.

    Like

What's your opinion on this post? Readers would like your point of view.

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s