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The time is now 10:00 am
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April 23, 2024, 4:41 am
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"It's the Productivity, Stupid
Published:
"We've all seen the "Why oh Why" pieces floating around about the economy? Why, if productivity is booming, GDP growth is strong, oh why is the labor market weaker than we think it ought to be? Why aren't Joe Six-pack's wages soaring and why are profits rising so strongly? Well, here's why: productivity is booming.
A useful introduction to the situation is this by Jared Bernstein over at the blog MaxSpeak:
Let us begin with a few observations:
Over the course of the current economic expansion, real GDP is up 15%.
The Congress is busy killing a moderate minimum wage increase while working diligently to repeal the estate tax.
Profits as a share of national income are at a forty-year high. The share of income accruing to the top 1%, after falling in the wake of the dot.com bust, is again on the rise.
Productivity is up a stellar 15% over this recovery. Real hourly wages of non-managers are up bupkes (-0.6%).
New economy cheerleaders expound on the great job market, yet employment growth is up only 2% over this business cycle. The growth for the comparable period over the 1990s cycle was 7% and the historical average for cycles of this length was 10%.
Rather than try and argue each point separately or in detail (for example, real wages are not the same as real compensation, which has been rising, neither the minimum wage nor the estate tax affect real hourly wages so as you'd notice and so on) let's take the major points as they are.
Real GDP and productivity have risen by the same amount, wages haven't budged, profits have surged and so has the income of the top 1 percent. The interesting question now is exactly the why oh why? one. Why have all of these things been happening?
There are a number of possible theories, of course. Perhaps Karl Rove personally contacts each and every CEO to remind them not to raise wages so as to benefit Republicans? If that were actually happening I tend to think that those of my friends who are CEOs might tell me, perhaps let it slip in a moment of beery introspection: maybe they don't because they'd have to kill me afterwards? Too difficult to get the blood off that mink-lined limo perhaps?
Perhaps such explanations should be better left to the tinfoil hat brigade. Part of what I think is the true answer comes from The Economist:
But by some other measures, the labour market is weak. Real wages for the median worker in America have been stagnant during this business cycle, although economic growth was running at an annualised pace of 5.6% in the first quarter. Corporate demand for labour has not been growing fast enough, apparently, to drive up wages.
What we need is a mechanism (one that preferably does not involve unlikely and nefarious conspiracies) to explain our observed facts. One that is explained in an essay in this book, Flying on One Engine, a collection of pieces from Wall Street economists from a couple of years ago. John P. Lipskey and James E. Glassman (not to be confused with TCS Daily host James K. Glassman; these writers are both economists at JP Morgan Chase) where they say this:
In particular, total employment will not expand unless the economy grows faster than businesses are able to boost productivity. Thus, the "hurdle" rate for job growth -- that is, the minimum rate of GDP growth needed to produce net job gains -- will vary over time, depending upon how successful companies are in improving their productivity.
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