Wednesday, August 30, 2006

The Wages And Productivity Conundrum

The actual data recorded by Steven Greenhouse and David Leonhardt in their recent 'New York Times' piece, entitled 'Real Wages Fail To Match A Rise In Productivity', will certainly be familiar to readers of Stephen Roach - however, reaction to it has been quite interesting.
Russell Roberts makes a not unworthwhile point in relation to the authors' failure to record the impact of benefits; however, the table he has produced from the Bureau of Labor Statistics does not really do much to reinforce his case - and David Leonhardt takes him to task in his 'Comments'.
Dean Baker notes the effect of depreciation.
The most interesting analysis has come from Tim Worstall.
Tim wrote,
"...productivity has been rising strongly, wages have not been. This sad state of affairs will continue while productivity grows faster than GDP. It explains all of the observed facts, without recourse to some conspiracy theory about screwing the workers, or the rich keeping it all for themselves."
Page 2 of Greenhouse and Leonhardt's piece records that,
"In 2004, the top 1 percent of earners — a group that includes many chief executives — received 11.2 percent of all wage income, up from 8.7 percent a decade earlier and less than 6 percent three decades ago, according to Emmanuel Saez and Thomas Piketty, economists who analyzed the tax data."
That's not a conspiracy theory - that's an indictment.
However, Tim's thesis perhaps contains the root of the answer to the question of why this phenomenon has come about. Putting ideological prejudice to one side, it would appear to me that this gross disparity between productivity and wages was not only inevitable, but actually should have been quite forseeable to any who cared to look for the evidence. It would seem to have been there for many years.
At the same time as value was being sought in manufacturing and some services through the use of offshoring, so too was outsourcing having an impact upon the market. The commodification of functions such as customer services or payroll created markets for these functions - and in order to win more business outsourcers had to produce more, while the more outsourcers there were in the market automatically lowered the price payable for their service. It doesn't take a great leap to assume that steadily lowering prices prices may have percolated down into wage stagnation for those actually doing the work.
At the same time, the way in which workers were paid was changing. Oxymoronically, contracting exploded. IT workers who might previously have been on payroll became self-employed, requiring them to find their own work. The presence of more contractors might have lowered the market rate. Every job I have had for the last three years has included an element of almost unattainable bonus. You have to work harder to make it. If the role of benefits in enhancing wages should be considered, so too should whether a drift towards the payment of bonus in lieu of salary has diminished it.
The effects of the revolutionary changes brought about by offshoring, the Internet and mass immigration notwithstanding, a disparity between productivity and wages would seem to be the natural consequence of the atomisation of the classical corporate structure that's been ongoing since the 1980's. Perhaps the very much more rapid pace of recent change has accelerated the process, bringing forward a day that was eventually bound to come.
Perhaps it's just another 'global imbalance' of the kind that might be corrected by, say, a Chinese invasion of Taiwan.
However, when the difference between how hard people work and how little they are rewarded for it is so stark, perhaps there is some truth in some words I wrote two years ago - that productivity gains while humanity loses.

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