Thursday, December 08, 2016

Baker on Productivity

Dean Baker authored a piece Monday which centered around the economist’s perception of the effect of productivity on the standard of living which is enjoyed by the working class, namely that increased productivity leads to “improvements in living standards and more leisure.”

One needs to understand that increased productivity means that more work is achieved by fewer hours of labor, meaning less employment, so I can understand the “more leisure” part, but I don’t quite understand how they think that’s a good thing.

I also don't understand how they think it leads to a higher standard of living for the working class, given that it means fewer working hours and less pay. It does, of course, lead to better living standards for business owners, since more work performed for less wages paid means higher profits.

The claim is often made that “increased productivity leads to higher wages,” but the claim is nonsensical. An employer makes an investment in automation so that he can employ fewer workers to produce the same amount, and then he diminishes the effect of that investment by raising the wages of the remaining employees? I don’t think so, unless he is provided with an incentive to do so.

Organized labor provides such an incentive, requiring the employer to raise wages as a trade off for employees accepting the introduction of the automation. It should be noted, though, that is not increased productivity which led to the increase in wages, it is collective bargaining by organized labor which did so. In the absence of organization on the part of workers, increased productivity is a negative for the work force.

Baker concludes his piece by saying that “if Lee is right and higher wages are leading to more rapid productivity growth, this is great news.” Great news for macroeconomic figures, perhaps but, since the productivity increase is caused by fewer jobs, certainly not great news for working men and women.

Baker countered my comment along the above lines by saying that, “we had very rapid automation in the quarter century from 1947 to 1973. It was associated with low unemployment and rapid wage growth.” When I pointed out, “we were rebuilding a world shattered by war and we had no competition,” his response was that, “having richer more productive economies as customers and sources of goods should make us richer.”

Sigh. “Richer more productive economies” are not customers, they are competitors. We do not sell to them, we buy from them, which impoverishes us, and they sell to what used to be our customers. That's why we no longer have “low unemployment and rapid wage growth” as we did in Baker’s favorite quarter century.

1 comment:

  1. bruce9:06 AM

    Well, it would seem to me that employment would remain static over time with increased productivity. Or perhaps decrease with retirements, etc., unless the increased productivity led to layoffs. If the business increased it's need for labor due to increased sales or whatever, then maybe increased employment.

    Nowhere did I read that increased productivity led to an increase in pay (increased living standards) or a reduction in hours at the same pay (more leisure time). I saw it and still do as more output for the business at the same cost. No change for employees. Unless they need smarter employees to run/maintain the automated stuff and they can demand and get higher pay.

    Okay I wrote that before I read most of Jayhawks's comments. I guess I was prescient on what he was going to say.

    Ivory towers vs. factory floor comes to mind.