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The Problem with Productivity

Copyright © 2003 by David E. Ross

Productivity Growth Is Best Since '83

By Peter G. Gosselin, Times Staff Writer

WASHINGTON — The productivity of American workers climbed at its fastest pace in two decades last quarter, the Labor Department said Wednesday. … Output per worker at the nation's nonagricultural businesses rose at a 9.4% annual pace from July through September, better than the 8.1% the department initially estimated and the best quarterly performance since 1983. The upward revision brought to 5.5% the average for the last two years, the best two-year performance since 1953, according to Bank of America Corp.

But as with so much else about the nation's latest bout of recession and recovery, there was a half-empty quality to the latest figures. "In every prior recovery, early-stage productivity gains led to more jobs," said Bank of America chief economist Mickey D. Levy. In the third quarter, however, virtually all the gains went to corporate profits, not higher wages.

"The combination of rapid productivity growth and anemic wage growth means that the benefits are going to corporate profits," said Josh Bivens, an economist with the Economic Policy Institute, a Washington think tank. Companies typically reap a substantial share of the gains from growth in the early stages of a recovery as profits rise and unemployment keeps a lid on compensation costs. But the share that corporate America is reaping this time around appears outsized by comparison with other recoveries of the last half-century, and the share going to employees appears correspondingly small. Bivens said government statistics showed that since the end of the recession in November 2001, workers had collected 29% of the growth in corporate income in the form of higher wages and benefits. The average at a similar stage in every other recovery of the post-World War II era was 61%.

Tony Anderson, area managing partner for Ernst & Young in Los Angeles, said he believed the economy was finally on the road to recovery. But Anderson said the latest productivity numbers suggested that job creation would not be strong enough to quickly replace the 2.4 million positions lost since March 2001, the start of the recession. "If you lost 100,000 people" during the recession, Anderson said, "maybe 70,000 will come back."

Los Angeles Times, 4 December 2003
[emphasis added]

Productivity measures the amount of labor to produce goods and services. An increase in productivity means that fewer workers produce more. That leaves fewer persons with jobs and income to purchase those goods and services.

According to Ernst & Young's Anderson, for every seven individuals finding work during the recovery, three others will not. That is, 30% of those who lost jobs in the recession might be unable to rejoin the consumer class in the recovery. This is exactly what happened in the 1920s, which caused the world-wide Great Depression in the 1930s — goods were being produced for which there were no consumers.

For the Christmas shopping season, stores are already reporting mixed performance. Wal-Mart Stores claims only a modest gain in sales. Up-scale stores such as Saks, Neiman Marcus, and Nordstrom, however, show significant increases. This indicates prosperity for managers and executives but not for workers.

The lack of prosperity for workers was confirmed by the Labor Department, which reported today that more workers filed new claims for unemployment benefits last week. The Labor Department asserts that even with the increase in claims, they remain at a level indicating that the worst of the layoffs seen this year are over. The reality is that, while the worst might be over, the layoffs do continue during the current economic recovery.

This recovery seems to be further enriching the already rich without really benefiting workers. By pushing increased productivity at the cost of job-growth and without rewarding those who actually produce, we are creating a false prosperity that will eventually collapse.

4 December 2003

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