Thursday, September 8, 2011

The Atlantic - The Greater Recession: America Suffers from a Crisis of Productivity

It is good to see in the past 12+ months more and more of the mainstream press 'getting it' from the perspective of rather than just taking political sound bites, they are looking under the covers to see the structural issues that have manifested in the country the past decade or two.  While these articles may come to different conclusions, they certainly have moved past the simple thinking of its all due to (insert simple reason A) or (insert simple reason B).

The Atlantic has an in depth article which focuses on the benefit/curse of productivity - good for capital, not so good for labor.  [Mar 28, 2011: Productivity - Wo(man) vs Machine]  At least in the short to medium run - in theory it should be great in the long run.  But in the long run we are all dead.  While GDP has surged, most of the rewards have gone to a smaller and smaller group of people (effectively creative thinkers, and capital owners).  This has happened over decades - again it did not just begin in 2007 - we hid it by a great influx of women entering the workforce, and then the use of credit, especially of the housing kind (in the past decade) to offset the lack of wage growth for Average Joe.

The second half of the article deals with the pressure on wages, and offsets of massive inflation of education and healthcare - topics long time readers will recognize back from 2007-2008.  I talked about a lot of this in 2007 [Dec 2007: Do the Bottom 80% of Americans Stand a Chance?], but again my stuff is in a tiny corner of the blogopshere, and back then very few were reading - we were still celebrating the fact subprime was contained ;)  Either way it's good to see this sort of conversation entering the type of media where many more people absorb it than our few thousand readers.  Before we can even begin to think of solutions, we need to admit the problem.  We are not even close to that as you will see tonite at 7 PM - instead more of the same old, same old.

I encourage the read - there are a few interesting charts as well, some of which are very similar to things we've been posting here at FMMF the past few years.


  • Before the Great Recession, there was a greater recession for the American worker. And it's been much worse than most of us thought.  Here's what we thought we knew. In the last three decades, gross domestic product doubled but the typical worker's real wages barely increased. For those with only a high school degree, salaries fell slightly. Some economists called this period of lazy wage growth the "Great Stagnation."  It turns out that "stagnation" was too optimistic.
  • In fact, real wages for middle class men have declined by 28 percent since 1969, according to a report from the Hamilton Project. For men without a high school degree, they've fallen by a whopping 66 percent. "Stagnation is too weak a word," said Michael Greenstone, author of the report. "This is decline."  (Mark's note - these first 2 paragraphs are accurate - my assumptions were those of paragraph one.  These figures look worse than what I usually see, which is something akin to 'adjusted for inflation, wages for men have been 'flat' since the 1970s)

Here is why the report from the Hamilton Project says the assumption was wrong - you may or may not disagree with the logic of including people who are completely out of the workforce, but of working age, and setting their salary at 'zero':
  • Economists got it wrong, Greenstone said, because they compared wages among all working men rather than among all "working-age" men. That distinction is key, because fewer and fewer working-age men are actually working. Since 2009, one in five has been idle. When you factor in millions of men without weekly salaries, male wages sink to their lowest level since the 1950s.

  • Americans have a complicated relationship with productivity. We obsess about our personal efficiency, but we don't think much about efficiency across broad swaths of the economy. Productivity is the not-so-secret sauce in our GDP. We're the second-largest manufacturer in the world even though manufacturing jobs have shrunk to less than 10 percent of our economy. We're the world's third-largest agricultural nation even though only 2 percent of us farm. The reason we can do so much work with so little is that the U.S. economy is incredibly, and increasingly, efficient at making some things cheaply.
  • .... technology and offshoring is replacing jobs for the middle-educated middle-class. "Almost one of every 12 white-collar jobs in sales, administrative support, and nonmanagerial office work vanished in the first two years of the recession," Peck writes, and one in six blue-collar jobs disappeared in production, craft, repair, and machine operation.
  • We know where the jobs are going -- to machines, software, and foreign workers. We also know why they're going away. Global competition gives companies the incentive to be more productive, and technology and foreign labor gives companies the means to be more productive. Automation lets one employee handle the work of three, or three hundred. Off-shoring lets ten Asian workers receive the salary of one.
  • What's so bad about 1950s wages, anyway? you may ask. They worked for the 1950s. We could make do with them today if the price of everything -- from socks, to televisions, to medicine -- moved at the same rate. But that is not what's happened.

The rest of the article goes to talk about the cost of life in America and especially focuses on the twin bubbles of healthcare and higher education costs - topics we've discussed at length here.  If interested please continue to the rest of the article.

[Jul 27, 2011: WSJ - What's Wrong with America's Job Engine?]
[Oct 4, 2010: WSJ - Americans Souring on Free Trade as Losing Their Jobs Overpowers Lower Prices]

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