Class Warfare Blog

December 30, 2016

The Productivity Paradox

From a N.Y. Times column by Neil Irwin (Faster Growth? Two Things Trump Supporters Won’t Like, 12-28-16) the following excerpt was taken:

The Productivity Paradox
Low productivity growth has been one of the chronic problems of the economy in the last decade, and an important contributor to the low growth rate, even if economists aren’t entirely sure why it’s happening. If we want living standards to rise over time, we need productivity to rise.
But the connection between productivity gains and higher incomes can take time to play out. Often it means short-term disruption — job loss — for workers whose jobs are rendered unnecessary.

Apparently the low productivity growth of the last ten years puzzles the author. It shouldn’t. Here’s why.

fig2_prodhhincome

Since higher and higher productivity over the last 40 years hasn’t resulted in higher wages, just what is the incentive for workers to produce greater productivity? I am sure the economically inclined could point to the earlier years described by the data on this graph as one in which workers produced more because of the salary incentives, precisely  because productivity and wages were linked and had been for quite some time. In fact, I can remember UAW negotiations for new labor contracts with Detroit automakers specifically mentioning that for higher wages to be part of any new contracts, higher productivities must be produced. It was a common discussion.

But now, all of the benefits of higher productivity go elsewhere than into worker’s pay envelopes, so what did Mr. Irwin think was going to happen? Does he thing that 40 years is an appropriate amount of time for “the connection between productivity gains and higher incomes … to play out”?

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