The Wage-Productivity Gap

[wolf]

I don't care what the graph says. I know that my boss gets paid more than I do, and does less work. His boss gets paid WAY more and does WAY less.

This has been the case in every organization I have worked in, as well as those of my friends and coworkers.

[tw]

Originally Posted by wolf

I don't care what the graph says. I know that my boss gets paid more than I do, and does less work. His boss gets paid WAY more and does WAY less.

This has been the case in every organization I have worked in, as well as those of my friends and coworkers.

And then we apply numbers to those subjective claims. Whereas the boss once got 14 times more money than the average employee, now that wage (and bonuses) has long since surpassed 140 times. I lost track when the number approached 300 times.

Even worse, the greater that disparity, then the worse the company. Where executives are paid most, the company (and its long term stock price) have been laggards.

I have a problem with the economist cited by UT. For once they use money as the reason for a problem, then I know they have confused symptoms with cause. Too many economists do this because they cannot really measure productivity nor reasons for that productivity. They can only measure cash flows. Those monetary figures are reporting events that occured four and maybe twenty years earlier.

The Wall Street Journal had a classic example of this economist problem. Air conditioners using tighter tolerances - manufactured using new and much more expensive machine tools - increased their productivity 8%. But this productivity increase never appeared in economic data. So much more costly machine tools did - as an expense. Therefore what only increased costs on economic reports instead, in the real world, caused significant productivity increases in America.

This is the conundrum demonstrated in Clayton Christensen's two famous books "Innovator's Dilemma" and "Innovator's Solution". Fundamental tools used in economics cannot measure innovation AND cannot measure good innovation verses irrelevant and unproductive. It is why some innovations are so disruptive. If innovation could be measured, then DEC with wave after wave of new ideas and new products would be dominating the computer industry.

Dr. Batra does identify a serious and worrying trend in America. And then I look to others who have been stating same from an innovator's perspective. On Charlie Rose, Azim Premji of Wipro (India) noted how severe America's technology base is so short of competent workers. He also notes how George Jr's policies in the name of security only aggrevate that problem. He (and to a lesser extent Nanbdan Nilekani) noted how their growth comes at the expense of America's diminishing technical competance.

It was no accident that Barbie said, "Math is hard". I see that in literally every teenager and college student I know. What does everyone want to be? A communications major. It's no secret that too many if not most American science and math teachers were not even math or science majors in college. The naive creating the naive. This even observed in two students in a hyped Charter School (finally returned to public school where they are doing better).

But again, where is any of this measured by economists. It gets measured ... but twenty plus years later. And what does an MBA president do to solve this? More testing. "No child left behind". So much testing that children are taught how to pass a test rather than learn science. GM does same to maximize their EPA mileage numbers rather than make decent products.

What we do know - a separation between wealthiest and poorest among us has never been this large - even just before a 1920s great depression. We also know that corporate profits are growing at record rates. From the Economist of 23 Feb 2006:

Decoupled
Fatter profits are supposed to encourage firms to invest more, to offer higher wages and to hire more workers. Yet even though profits' share of national income in the G7 economies is close to an all-time high, corporate investment has been unusually weak in recent years. Companies have been reluctant to increase hiring or wages by as much as in previous recoveries. In America, a bigger slice of the increase in national income has gone to profits than in any recovery since 1945. ...

Workers can still gain from rising profits if they own shares, either directly or through pension funds. There is reason to think that the share prices of large listed companies will fare better than their home economies. Economic theory and historical experience argue that, in the long run, profits grow at the same pace as GDP. However, if the profits of big companies are increasingly linked to global production, then the profits of listed companies in developed economies could rise faster than domestic GDP for many years.

Demonstrated is why creditors are becoming so much more wealthy at expense of debtors. A little secret. I was never so foolish as to take out a car loan or maintain any debt on a credit card - ever. In this changed society, creditors are now even better rewarded. As more try to become creditors, we have the example of Capital One desperately sucking up as many debtors as possible.

What also confounds economists is the inverted yield curve. When long term interest rates are less than short term, recession is predicted. A recession that should be expected many years later because of what tax cuts do to an economy and due to excessive government spending. Why does this current inverted yield curve preceed recessions. Again, no one knows (from what I have read). But to suggest an inverted yield curve causes recession is absurd. That unfortuntately is what too many economist do when they try to explain an economic future in terms of current monetary trends. Money does not create or avert recessions. But monetary statistics can be a precursor of past and maybe of future problems.

Again, The Economist:

A more promising way of allowing workers to share in companies' prosperity is to encourage firms to introduce profit-sharing schemes for employees. But perhaps the most useful thing that governments can do is to ensure that consumers (ie, workers) benefit from lower prices as a result of the shifting of production to low-cost countries.

But only top management gets that increased share of corporate profits. In GM with no growth, that was only four hours from bankruptcy in 1990, and that makes some of the world's worst automotive products; top management continues - even this year - to recieve large bonuses and other compensations. Employees get virtually nothing. Something has indeed changed. Economists only worthwhile task at this point has been to record events. Neo-classical economics does not know what to make of this current world wide economy. Even services cannot be measured reliabily which is part of a larger arguement about Dark Matter - investments and incomes completely unknown to neo-classical economics. All this because, using neo-classical economic standards, a high tech company such as steel is instead called a 'smoke stack' industry.

Of course all this is quite technical. Therefore The Economist would use a serious picture in their articles:

[Undertoad]

Originally Posted by tw

I have a problem with the economist cited by UT.

Not me dude. (Am I everyone you argue with now?)

[FallenFairy]

Originally Posted by Undertoad

Not me dude. (Am I everyone you argue with now?)

[tw]

Originally Posted by Undertoad

Not me dude. (Am I everyone you argue with now?)

I don't have any problem with the facts provided by that economist. I have a problem with what he suggests as solutions; that changing monetary policy can fix these problems.

Meanwhile, whether wages are most of or just one source of America's income, the fact remains that American wages and other income sources have remained flat while corporate productivity and profits have climbed immensely. I don't believe anyone here disputes that - at least from the perspective as I read them.

Facts from that economist were also stated in a cited article from The Economist. I am not entirely sure, but I believe Greenspan also said that. However if one listens to Greenspan, one cannot always be sure what he said.

I believe the consensus here is that common man American income has not increased in this short century.