Profitability of my PC business since 2001: Up 40% per year. Soon I will build my River Rouge plant..... muwahahah!
Non-farm producitivity: up 30% since 1995.
Worker's real wage and salary gains since 2001: up only one-half of one percent.
We do live in amazing times. Since the first quarter of 1995, the real productivity--nonfarm business--of America's workers has risen by 30.1%. The average American worker in the first quarter of 2004 produced 30.1% more goods and services per hour than his or her counterpart in the first quarter of 1995. At that pace of growth, America's real economic productivity would double in only 26.4 years: each generation would live twice as well as its parents.
But the bright silver clouds conceal a dark lining. Since the first quarter of 2001--the last business cycle peak--the productivity of America's workers has risen by 14.1%. But real GDP has risen by only 8.4%. And workers' real wages and salaries have risen by only 0.5%. Real wage and salary income per capita has, so far, fallen by 3.5% over the Bush administration.
Profitability of my PC business since 2001: Up 40% per year. Soon I will build my River Rouge plant..... muwahahah!
Reminds me when my boss laughed at me for me saying it is a 40 hour work week.
Well, now after 3 years with no pay increases the whole office is on my side. 9-6 like clockwork. I'd say our productivity has leveled off, if not fallen off.
I'll up my productivity when they show me the money. :evil:
Not to be pedantic, but wouldn't a valid comparison use the same time period? If you're going to use 1995 productivity numbers, you should also use 1995 wage and salary numbers.
I note that the quote cites a 14.1% rise in productivity since 2001, but only a 0.5% rise in wage and salary over that time. Fine as far as it goes, but it does raise some questions. A lot of the time period covered was in a recession; how much of that 14.1% has taken place in the recovery period of the last year? It might be that wages and salary increases, which typically lag productivity gains, just haven't had a chance to catch up yet.
I'm not disputing your basic thesis that rising productivity has outrun wage and salary gains; I think that's basically true, and is largely responsible for the jobless nature of the recovery. But I do think the economic reality might not be quite as skewed as your numbers make it appear.
And also, how much of that productivity has been due solely to advances in technology? Computer programs that I used back when I was doing engineering work would allow me to do the work of 2-3 people easily.
The numbers summarize "technology has made us all rich, but the crap economy has kept workers from sharing in the gains of technology for the last 4 years." I guess it's not clear, but productivity gains have actually haven't varied much from year to year in spite of the recession.Originally Posted by Damien Falgoust
There's also been a shift to capital taking more of the nation's income share, but that's a side issue. It's mostly the collapse of the labor force participation rate.
Its an interesting point Jason. I will draw a picture from my own life. I work at a software company. Since 2000 our revenue has gone from 89 million to 180 million projected for 2004. The company shows an average profit margin per year that is greater then 25%. The company is private, the owner took home 35 million+ last year. In 1995 the company revenue was 30 million. Now during this time of tremendous growth in profitability and the phenomenal growth in income for the owner what do you think the wage increase for his employees has been? Between 2000 and 2004 the annual increases were 3%, 3%, 3%, and 4%. Adjusted for cost of living this means the average worker has probably had their income increase by 1 to 2 % in real money. During that time the owner has seen his income go from 24 million to somewhere around 35 million.
This is the major fault with the US economy today in my opinion. The divide between the owners/investors/top management and the rank and file is widening. I don't have numbers to back this up but I would have guessed this divide shrank from the 30's to the 70's and has exploded wider again in the last 20 years. Amazingly during this time the defenses of the employees have also eroded away. Unions, labor laws all seem to have had their teeth pulled.
Yeah, the labor market's been really weak, so employers haven't had to give really significant raises.
Though to be fair, of course you're going to see gains proportional to the owner; the only determinant of your wage is how hard it is to replace you. Hooray for wage slavery!
I have two points to add to this discussion
1)I agree with Jason that these numbers are very important in describing in what is going on in the recent US economy. Specifically, although gross wealth is increasing at a substantial rate due to increased productivity, the majority of the population is getting very little benefit. This means that for many average people, life is not getting better (or if so, it is minor and gradual). Also, in certain aspects of the market, such as housing prices, the increase in wealth of the top tier is having a negative relative impact on the mass of citizens. For example if you live in a city where the purchase of large homes or second homes by the wealthy has driven average home prices up by say 25%, and your income has only gone up 5%, then you have suffered a relative *decrease* in your homebuying power. (I realize its somewhat more complicated than that but the basic premise is correct, in certain markets).
So these wealth share numbers describe a serious issue. However, the numbers themselves don't give us any useful answers as to what to do about it. The core issue here is that productivity has increased *relative to the hour worked* - ie we are not seeing gross productivity gains like we did in the 80s based on the average worker doing more hours of work per week. Instead we are seeing NET productivity gains - each hour of work produces more product. The employers would say that most of this increase is due to investment in new technology: hardware, software, robotics and industrial tech, and so on. Technology is a multiplying factor on productivity and the employers would say that since they invested in the tech, they should get the reward.
I would guess that some fraction of the increased productivity is due to more skilled workers but that the large majority is due to investment in production technology.
Since the employers are getting a return on their investment what can be done about this?
My general opinion is that the longterm solution is for the market to cause wages and benefits to rise, which will put a larger share of the increased wealth in the hands of the bulk of the population. The big question in my mind is, why is that not happening? Why has the bargaining position of the worker been so weak the last few years? I don't think the easy Bush-bashing answer (weaker unions, corporate corruption and so on) is a complete answer. Some of that has occurred but IMO the better answer is long term structural changes in the labor market.
2)In my view there are 3 big changes underway, on a historic level, that will change the basic bargaining position of employers vs the average unskilled, semi-skilled, and even skilled worker, in America:
a)Increased productivity decreases the relative value of labor. If the labor pool remains the same size and production tech allows each worker to make more widgets, then the relative value of each widget-making-worker is less. If 4 workers and a machine can produce as many widgets as 5 worker without the machine, and if the machine costs less than the 5th workers, then its seeya mr. worker. And if this is ocurring across large chunks of the economy then that displaced worker #5 is going to have a hard time finding a new job. If he does it may be at less pay. I believe we're in the midst of a massive long term trend that is reducing the value of labor on a relative basis. The overall bargaining position of labor is in a longterm downward trend IMO and I don't see any good solutions. The increased productivity has massive upsides in increasing overall wealth for the whole society, but that is meager recompense for the displaced workers, and the workers who can't bargain for better situations.
b)Outsourcing is decreasing the bargaining position of American workers in most or all skill levels. Although the impact of outsourcing might be somewhat overhyped, the long term trend is clearly weakening the bargaining power of local US workers.
c)High immigration levels (both legal and illegal) is weakening the bargaining position of US workers. An influx of unskilled and semi-skilled labor is keeping entry level and labor wages low in large parts of the country. I see it here in SoCal when I look at what the employers I represent are paying low-end factory workers and the like. There is no shortage of workers in SoCal to take $6.75 an hour crap jobs - in fact if the minimum wage were lower there are tons of workers who would work for less IMO. A large chunk of this labor pool are immigrants, especially illegal immigrants. Even crappy US wages are often a big improvement over their native economies so they have an incentive to come here and work cheap (working cheap is better than starving).
Bottom line, the relative bargaining power of most workers to command a higher wage is weak, and the bargaining position of the employer is currently strong. That IMO explains why so little of the recent economic gains have made it into the pockets of average workers.
But what's the solution? Increased productivity has a huge upside. Outsourcing has potential upsides. Immigration has upsides. And yet these all have a downside of weakening the bargaining position of labor in the US. There is no quick and dirty fix.
So thats the problem and I don't have great solutions. My own ideas are fairly anemic: we need a good education system so that workers can enhance their skills and their bargaining position; we need to organize better systems of public or private re-training for displaced workers; and we need to limit illegal immigration (not legal immigration) by guarding the borders better, sharply cracking down on employers who hire illegals, prosecuting those who procure illegal employees, and deporting illegals when possible. However, even if we did all of the above, I am not sure it would reverse the long term trends. Perhaps mitigation is the best we can hope for.
I keep hoping that some kind of market solution will present itself but I don't see it as yet.
The retirement of the baby boomers, maybe?
I don't think the trends you describe are restricted to the US economy. The distribution of wealth in particular is following a similar trend in most countries, as far as I know.
Sharpe that was a great post. I appreciate the thought and effort you put into that. It clarified a lot for me about what is going on and brought some new ideas in as well.
I'd say that the concept of "the workers" still have significant power, and with a movement to organise and wield that power, a lot of negative consequences to them caused by the profiteering of companies could be prevented.
That'd be communist, though.
I'd note that most of those "negative" consequences are envy-related. Wait, actually all of them are. Real wages went up in Jason's multiple endpoint stat quote.
Workers are willing to give up more of their producer surplus in the labor market. Production has been getting more capital intensive for the past 400 years, this is an expected byproduct of that.
The easiest "solution" to this "problem" is to buy stock. Because unless there's some sort of plague among the educated, labor's bargaining power isn't going up in the foreseeable future.
Envy related. Yes. The growing ranks of the working poor "envy" those people who aren't forced to choose between paying for food or buying medicine for their family. The desire to make a large enough wage that you aren't living at the poverty level despite two full time jobs is borne out of envy. That's what you're saying, Ben, because that's what those numbers represent - the shrinking of the middle class, as social programs for them vanish, as their share in the profit of their companies decreases or remains static, and as the tax burden is massively shifted from the upper class to the middle class.
But, shit. All that's just Envy, right?
Damn, I wrote a piece on economic diversification then realized I didn't believe my own conclusions. I'll try again...
The only way I can see to increase labor dollars is to decrease the relative labor supply. Labor must move into capital. If businesses make the money then labor has to do what Ben said and buy stock and/or start their own businesses. More stock bought and businesses created will fuel *demand* for labor and increase labor wages.
Think about what a company can spend money on. They can buy stock in other companies, expand themselves, or buy more expensive and better employees. By labor buying more stock and creating more businesses, stock gains and business gains (per business) will decrease, making other financial spending more attractive.
Its an equilibrium, and right now its heavy toward capital. Move toward capital, and the scales will balance back.
Go where the money is.
Oh, give me a break, Ben. Yeah, it's envious to wonder WTF is causing almost all of economic growth to go to capital.Originally Posted by Ben
Wow, I'm scaring myself but I think Koontz' last post made a really good point. One potential market solution to the current imbalance is for workers to invest more in capital, which will both provide them with return on their investment and increase demand for labor.
Of course there is a chunk of the labor market which is too poor to have any meaningful ability to invest. But this fraction seems small to me. My own impression is that most upper-working class and middle class families have a decent chunk of money which is now being spent on consumption (ie most families I know have big screen TVs and relatively new cars). An argument can be made that a reduction of consumption and an increase in the savings rate would benefit those families greatly over the long haul.
Its not a complete solution of course and their are significant "satisfaction" costs to it but its a reasonable attempt at a partial market solution.
Hmm, maybe I better increase my 401K contribution :).
I've been leaning in much the same direction as Koontz did in that particular post, but I don't know if there's a feasible way of doing it. It is clear, however, that labor must get more involved in the dealings of the capital. I was considering part ownership for all workers, to a certain percentage in a company. Very difficult to accomplish, though.
Of course, we could all start voting syndicalist.
Wasn't Olof Palme trying to accomplish something like that before he was shot?Originally Posted by Anders Hallin
Oh, it's envy. Sure. Hope that's a comfort when you're first up against the wall, bourgeois pig! No, but seriously, is it wrong for the majority of people to wish for a more equitable sharing of wealth?Originally Posted by Ben
Even better: Eliminate the distinction between labour and capital.Originally Posted by Brian Koontz