Is There a Mismatch Between Productivity and Workers’ Income?

The American Thinker ^ | December 7, 2016 | Joshua Anumolu

[expat_panama]

An article by Lance Selfa, a columnist at the "Socialist Worker", argues that economic growth does not help working people:

“One of the orthodox assumptions of both liberal and conservative economics is that a more productive economy leads to higher living standards. According to the theory, when workers are better educated and better trained, and when technology is intelligently deployed to increase economic efficiency, the overall economy produces more and workers earn more. Or so the theory goes. What's the evidence?”

In fact, Selfa's argument has been routinely rejected by economists for the following reasons.

First, the article ignores the law of diminishing returns...

...Second, the article ignores the power of economic growth. The main reason why workers’ wages have not grown as quickly as socialists like Mr. Selfa might like is low economic growth...

...Third, the article ignores the important role technology and productivity play in economic growth....

...Fourth, using the right methodology reveals different results. The analysis by the EPI only took into account workers’ salaries and wages. However, workers can receive higher benefits even if their incomes are stagnant...

...Once you take into account these discrepancies, there is no difference between productivity growth and income compensation growth.

Fifth, rising income inequality does not prove the poor are becoming poorer...

...If productivity leads to workers with larger paychecks, increasing productivity is a more efficient way of benefiting America’s working class. Increasing the productivity of corporations and small business will increase the median wages of American workers without increasing unemployment the way minimum wage laws do. In other words, it is important to remember that the economy is not improved by raising wages; wages are raised by improving the economy.

[expat_panama]

These two graphics may help explain the article's points. 

 

My thinking is that there are a couple of things overlooked here so far.  One is that worker income and productivity are not in lock step. 

The big one has got to be that while labor is important to production, contrary to the populist view it's not everything.  Capital matters too.  An eight hour day with a $3 shovel digs a much smaller hole than an eight hour day w/ a $500,000 excavator.   That excavator has to be paid for too.

 

Another big reason that the complaint about lagging wages is bogus is the fact that wages simply do not always to all the lagging.

 

For the past few years productivity growth has ground along averaging less than a % annually, but worker income's been growing

 

This may or may not cause inflation; mho is that in what's going on is that this time it's income for capital is lagging productivity.

 

 

[Sacajaweau]

Let’s just look at government workers.

[Cboldt]

I far from have a good handle the subject of economic prosperity, other than it is in large part a matter of pure psychology and confidence. At any rate, the observation relating to capital causes me to ponder that one man's capital (the excavator in the eyes of the ditch digger) is another man's labor (the excavator builder).

As for the premise of the article, any linkage between (worker) productivity and (worker) wages is, as you notice, contrived. Work is paid for, at the value of the worker's time and how much competition there is for that grade of worker. The value of the output of the worker is highly variable based on other factors.

[expat_panama]

It's a beautiful mid-week morning (and remember Pearl Harbor Day) as the NASDAQ punches up a half % in rising volume!  IBD is still looking out on the outlook as just 'market under pressure' but we can hope.  Futures traders have no comment; they got stock indexes flat just like metals as gold/silver continue their sideways bases.

Today's major econ stats:

7:00 AM MBA Mortgage Index
10:00 AM JOLTS - Job Openings
10:30 AM Crude Inventories
3:00 PM Consumer Credit

Headlines w/ our morning coffee:

Sorry Luddites, AmazonGo Will Be Huge Job Creator - John Tamny, RCM
When Checkout Lines at Grocery Stores Go Away - Justin Fox, Bloomberg
Carrier Is a Loss for Mexicans and Americans - Donald Boudreaux, PTR
Trump's Carrier Deal Won't Make the U.S. Great - Matthew Mitchell, RCM
Obama & Trump Are Both Wrong About Saving Jobs - David Dayen, TFT
Growth Under Trump Will Make His Job Easy - Tom Del Beccaro, Forbes
The Constitutionalism of Crony Capitalism - Greg Weiner, Law and Liberty
Can Donald Trump Be the Euro's Savior? - Daniel Gros, Project Syndicate
Trump Must Repeal Dodd-Frank Right Away - Editorial, Investor's Business
A Bigger Econ. Pie That Few Get a Slice Of - Patricia Cohen, New York Times
Castro, Socialism, and the Shortsighted - Richard Rahn, Washington Times

[wastoute]

One may debate “trickle down” with libtards until the crack of doom. Notice how even they won’t try to defend or even explain Socialism’s “trickle up”. They dumbest dumbass knows increasing gummint does not improve the economy.

[mom4melody]

I’m a government employee and I work my ass off.

[Blennos]

I’m a government employee and I work my ass off.

Of course you do. You are one of the good ones. We recruit only the best and brightest here at Free Republic.

[Fzob]

Outside of Union rhetoric I have never seem any reason to connect productivity to hourly wages. Maybe someone can explain.

[expat_panama]

never seem any reason to connect productivity to hourly wages

--other than the fact that higher productivity means less need for labor?

[Mr. Jeeves]

I've always had a hard time understanding how these measurements of productivity are measuring actual productivity. Seems like there is a subjective component - not unlike the unemployment statistics - that can be massaged tactically to make governments look good.

I would think that stagnant wages are a sign that wage-payers aren't feeling all that good about their profitability, meaning any productivity increase was necessary simply to run in place. That is true in my own business, where we are operating far more intelligently and efficiently than we were five years ago - and have to just to generate the same level of revenue in a much tougher marketplace.

[exDemMom]

If I make five widgets per hour, and you make ten, do I deserve the same hourly wage as you?

What if my five widgets are high quality, well-crafted widgets, and your ten widgets were sloppily slapped together? Should we receive the same hourly wage?

Maybe our wages would be better set on the quality and quantity of widgets that we make, and not the time spent making them?

[mewzilla]

FWIW, it’s not about what you make, it’s about what makes money. If cheap, crappy widgets make a profit, but well-made expensive widgets don’t, guess who keeps her job?

[MayflowerMadam]

“I’m a government employee and I work my ass off.”

I was, too (before retirement), and I worked my ass off. My AA co-workers, OTOH, vegged out, filed their nails, chatted endlessly on personal phone calls, called in sick (we couldn’t call in “lazy”), took three-hour lunches, etc.

I love retirement.

[Hodar]

That is an awefully big paintbrush you are using. Not every Federal Worker is the personnat the post office that ignores you, a corrupt IRS bureaucrat or a porn watching Homeland employee. These idiots give us all a bad name.

We are DOD men and women making things for the warfighter, managing contracts, ensuring quality and engineers. We are NASA and orbital engineers working on your defense systems. Who do you think oversees the maintenance, design and upgrades of your nuclear program? Military folk rotate in and out every 2-3 years. We live here.

We are planning mankinfs trip to the Stars, watching the weather, drug interdiction and doing all kinds of jobs - hand in hand with Americas best.

Only a few bad apples ruins the work of hundreds of thousands of excellent people.

[bert]

The concept of worker is out of date.

With regard to employees today, the market does nor require workers. The market increasingly requires thinkers.

Those physically fit but mentally lazy are unfit for the current workplace.

[exDemMom]

There is the old adage, “You get what you pay for.”

In the long run, my carefully crafted widgets could turn out less expensive than the cheap poor quality widgets, when repair/replace costs are factored in.

Once upon a time, I was employed making widgets. They had to be made to very exacting standards. I have no idea what they were for. That job did not last long.

[Vermont Lt]

I recall reading a study in the late 1990s that indicated if people just worked when they were at work, productivity would skyrocket.

There is a lot of lost time in most jobs.

[mewzilla]

A free market will generally find the best product at the best price for the customer. It’s not always be pretty, but I prefer free market capitalism.

[thoughtomator]

Having seen, as a contractor, the internal operations of a number of departments and agencies, my observation is that the federal workers who genuinely do work worth the name are encountered with needle-in-haystack frequency.

On the other hand, federal employees who are there to do nothing but milk the system for maximum personal benefit and who cares about the rest of the world are overpriced at a dime a dozen.

[ßuddaßudd]

Blame it on FReeping...
it must be ok, my employer allows it thru all the security,,, gracias jefe..