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March 07, 2007

A Productivity Primer

As Dean Baker notes, productivity growth is slowing, which may well presage a fairly significant recession. Productivity has been a tricky indicator in recent years, as it used to track quite closely to wage growth, but that link has severed over time, and economists don't really know why or what to do. In the midst of all this, occasional TAP contributor Maggie Mahar sent along a great, slightly older article taking a skeptical view of productivity as an indicator of economic health:

One perspective on productivity involves a trip to the farm to look at chickens laying eggs. Basically, productivity in the coop increases when chickens lay more eggs per day. Early on farmers noted that hens could produce more eggs when confined to a cage instead of running around searching for food, being chased by cocks, or having to evade predators. Putting them in a small cage, feeding them to the maximum and clipping their bills so they couldn't peck neighbors resulted in further gains in productivity. To understand productivity as it relates to the economy substitute the word "chicken" with "worker."

It gets more skeptical from there. This is a slightly counterintuitive view of productivity, but it better tracks with recent experiences, wherein productivity has not rapidly translated into increases for workers. Donald Perry's point that "Asian chickens produce more eggs on less food" has certainly been borne out, and the 1970's era belief that more productive chickens get more feed hasn't described the reality. That said, productivity increases remain a bad thing to lose, and given the lack of other robust economic trends, the productivity downturn is worrying.

Crossposted to Tapped

March 7, 2007 | Permalink

Comments

Well the productivity declines can be easily reversed by conservative economic policies:

- move jobs to more productive countries
- lay off workers, restrict organizing, fire when tender
- pay the CEO more
- eliminate regulation that always harms industry
- lower taxes on biz
- eliminate worker benefits
- lie to the public with government data
- fire whistleblowers and those insufficiently brainwashed
- and finally, return to the seven-day work week (religious services during the lunch hour)

[/more snark]

Posted by: JimPortlandOR | Mar 7, 2007 5:18:31 PM

I thought the lack of tracking between productivity and wage growth was a natural outgrowth of the financialization of our economy brought about by dumping the Bretton Woods Accords.

Posted by: BillCross | Mar 7, 2007 6:47:38 PM

How very AFL CIO to see a negation of productivity.

As to why productivity has decoupled - more of an increase in the time lag, thanks to reduced unionism. This is a good thing, since we get less inflation from a productivity increase and thus more investment and more jobs (increased overall well being but lower than the alternative for the people who already had jobs).

With this thesis, productivity growth is a leading indicator of a slow down, but instead of being short to medium term indicator it would be a medium to long term indicator. Look at late Clinton productivity trends and income trends. Wages went very high very fast as we neared the peak, from say 97 on. Peak hit mid 2000, so don't be too worried short term.

Posted by: Hey | Mar 7, 2007 8:35:19 PM

"As to why productivity has decoupled - more of an increase in the time lag, thanks to reduced unionism. This is a good thing, since we get less inflation from a productivity increase..."

Productivity decoupled around 1979 and since then real wages have pretty much stagnated for most working Americans. Yes, there has been less inflation as workers are in no position to fight rises in the cost of living. The bosses are accumulating productivity increases, and so inequality has been exploding.

So the real question is, what is better? Having rising wages, more equality and some inflation (as in the 1950s, 1960s and 1970s). Or having stagnant wages, rising inequality and low inflation (as in the 1980s onwards). Hard one. We know what the capitalists prefer.

It is a shame that Michal Kalecki's 1943 prediction on full employment is not better known. He argued that while full employment was possible, it was doubtful that it would happen for long. For with full employment workers no longer fear unemployment and get rebellious. Their bosses would prefer that not to happen and so would campaign against full employment measures. They would get many an economist to support this position (e.g. Monetarists in the 1960s and 1970s). Which pretty much explains the post-1970s period quite well.

but who cares if workers are paying the price? We have low inflation -- because workers are too scared to fight for their rights and claim their share of productivity growth. Unsurprisingly, the elite are finding the situation pretty enriching. I'm surprised that anyone else would consider this a good thing.

Posted by: Anarcho | Mar 8, 2007 4:46:40 AM

This is a slightly counterintuitive view of productivity
Lots of people have been in this situation, however:

Manager: They just laid off half our department so we'll have to figure out how to cover the work.
Worker: Will we get overtime? raises? bonuses?
Manager: Don't be ridiculous. They had to lay off half your colleagues. Do you want to be next?

Posted by: apm | Mar 8, 2007 8:05:30 AM

"This is a slightly counterintuitive view of productivity"

Counterintuitive for who? I daresay there are a lot of people who have been working for the last 25 years who are quite familiar with this "decoupling". This isn't snark Ezra, it's just experience.

apm's example above, again, isn't some dilbert script, it's reality.

This way of abstracting the life experience of millions of people is amazing to me.

Posted by: ice weasel | Mar 8, 2007 8:31:52 AM

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Posted by: judy | Sep 27, 2007 8:23:50 AM

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