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?
What 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.