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Productivity Myth and "Rising labor costs" hypocrisy

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When statisticians talk about “labor costs” (and economists and politicians talk about “compensation”) they mean all forms of earned income, like wages, salaries, bonuses and stock options, plus benefits, like insurance and pensions. Measured that way, employees don’t look too terribly squeezed.

But the truth is that the increases are limited to upper echelons of executives and first of all to excessive granting (and backdating them to add insult to injury) of options that dilute shareholder value.  For most workers, increases in wages or salaries, if any, have been steadily eroded by inflation. At the same time health insurance now costs more and covers less leading to the deterioration of the standard of living. [Look Who Got a Raise - New York Times].

Few economists believes productivity numbers produced by government. They are so biased that it might be prudent just to ignore them as noise; also they do not reveal the composition of employment gains (are they mostly from government or private sector ?).  When statisticians talk about “labor costs” (and economists and politicians talk about “compensation”) they mean all forms of earned income, like wages, salaries, bonuses and stock options, plus benefits, like insurance and pensions. Measured that way, employees don’t look too terribly squeezed.

But the truth is that the increases are limited to upper echelons of executives and first of all to excessive granting (and sometimes backdating them to add insult to injury) of options that dilute shareholder value and is the main reason of such a huge amount of shares buybacks: buybacks essentially is new type of insurance the is planned in corporate budgets. It insures then executive options will not lend under the water when the time comes to exercise them.

Outside the few who are affected by options and other similar forms of compensation the picture is quite different. For regular workers from truckers to programmers, increases in wages or salaries, if any, have been steadily eroded by inflation. At the same time health insurance now costs more and covers less leading to the deterioration of the standard of living. [Look Who Got a Raise - New York Times]

Also the types of jobs created are much less attractive the jobs eliminated (jobs pool erosion). Too many new jobs are McJobs: low paying jobs in service sector without health insurance.  The same is true about many self-employed (and this sector is growing the most rapidly due to real estate boom). 

Government bureaucrats also are afraid to tell the truth. Richard Benson is one critics of government labor statistics, who wrote several insightful papers on the subject, noted "The BLS is mindful of how politically sensitive any reported job data is to the White House, so there is a strong bias for the government bureaucrats to publish a favorable jobs report."

It is offshoring that is the source from which corporate profits are coming and it has indirectly influence the "rising productivity" statistics.

While  the strong earnings growth of U.S.-based corporations might be real, the question arise what part of those  gains are coming from improvements in domestic productivity and what part from offshoring.

Moving strategic aspects of production or product development overseas could be having a greater impact on corporate earnings than anyone guessed--or measured.

Houseman first uncovered the problem with the numbers that is created by offshoring, she was primarily focused on manufacturing productivity, where the official stats show a 32% increase since 2000. But while some of the gains may be real, they also include unlikely productivity jumps in heavily outsourced industries (see BusinessWeek.com, 6/2/07, "Overseas Sweatshops Are a U.S. Responsibility") such as furniture and audio and video equipment such as televisions. "In some sectors, productivity growth may be an indicator not of how competitive American workers are in international markets," says Houseman, "but rather of how cost-uncompetitive they are." For example, furniture manufacturing has been transformed by offshoring in recent years. Imports have surged from $17.2 billion in 2000 to $30.3 billion in 2006, with virtually all of that increase coming from low-cost China. And the industry has lost 21% of its jobs during the same period.

Yet Washington's official statistics show that productivity per hour in the furniture industry went up by 23% and output by 3% between 2000 and 2005. Those numbers baffle longtime industry consultant Arthur Raymond of Raleigh, N.C., who has watched factory after factory close. "And we haven't pumped any money into the remaining plants," says Raymond. "How anybody can say that domestic production has stayed level is beyond me."

WRENCHING PROCESS

Paul B. Toms Jr., CEO of publicly traded Hooker Furniture Corp., (HOFT ) recently closed his company's last remaining domestic wood-furniture manufacturing plant, in Martinsville, Va. It was the culmination of a wrenching process that started in 2000, when Hooker still made the vast majority of its products in the U.S. Toms didn't want to go overseas, he says, but he couldn't pass up the 20% to 25% savings to be gleaned from manufacturing there.

The lure ofoffshoring works the same way for large companies. Byrne of Accenture is working with a "major transportation equipment company" that's planning to offshore more than half of its parts procurement over the next few years. Most of it will go to China. "We're talking about 30% to 40% cost reductions," says Byrne.

Yet no matter how hard you look, you can't find any trace of the cost savings from offshoring in the import price statistics. The furniture industry's experience is particularly telling. Despite the surge of low-priced chairs, tables, and similar products from China, the BLS is reporting that the import price of furniture has actually risen 6.7% since 2003.

The numbers for Chinese imports as a whole are equally out of step with reality. Over the past three years, total imports have climbed by 89%, as U.S.-based companies have rushed to take advantage of the enormous cost advantages. Yet over the same period, the import price index for goods coming out of China has declined a mere 2.3%.

What is called "rising labor costs" more property can be called "rising stratification of the society"

In reality what is called "rising labor costs" more property can be called "rising stratification of the society.". Here is one relevant quote  from the interview of Martin Mayer, Banking Expert (iTulip.com, May 7, 2007):

Mayer: I'm not a believer in NAIRU (Non-Accelerating Inflation Rate of Unemployment). Greenspan told me he can't understand why I don't believe in NAIRU as a valid economic principle but I think the problem is plain. NAIRU says that wages drive inflation. But my observation is that this is not the case.

Higher prices never start with wage earners getting higher wages. Wage earners demand higher wages in response to higher prices. The cycle starts with the prices of things wage earners buy, such as gasoline.

That's happening today and has been going on for a while, and that's why I believe there's more inflation risk than the markets perceive and why the Fed will keep raising rates. more ($ subscription)...


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[May 29, 2017] As GDP includes such things a military production and consumption as well as gambling profits (Wall Street firms profits, stock market gains) how realistic is productivity as a metric?

May 29, 2017 | economistsview.typepad.com

libezkova -> cm... May 27, 2017 at 10:35 PM

I have a question:

Productivity is typically defined as GDP divided by the total number of hours worked by population.

As GDP includes such things a military production and consumption as well as gambling profits (Wall Street firms profits, stock market gains) how realistic is productivity as a metric?

I do not think it is realistic. Like many other neoliberal metrics (and first of all GDP), I think it is a fake -- a pseudoscience, if you wish.

Sandwichman -> libezkova... May 27, 2017 at 09:49 PM
Productivity is only a realistic concept when dealing with stable units. Dividing GDP by labor hours (or private sector labor hours) is not realistic because the monetary units are not actual stable units because the composition of goods and services measured by GDP changes over time.

In other words, even if GDP may be useful for comparing aggregate monetary value of goods and services from period to period. It tells us nothing about physical output and THAT, not monetary value is what the concept of productivity implies.

If the proportions of various goods and services remained constant from quarter to quarter, then GDP/hours would tell us something about productivity. But they don't, so it doesn't.

See "Productivity as a Social Problem: The Uses and Misuses of Social Indicators," Fred Block and Gene A. Burns

https://www.jstor.org/stable/2095366

Sandwichman ... May 28, 2017 at 05:03 AM

https://www.researchgate.net/publication/271685715_Productivity_as_a_Social_Problem_The_Uses_and_Misuses_of_Social_Indicators

December, 1986

Productivity as a Social Problem: The Uses and Misuses of Social Indicators
By Fred Block and Gene A. Burns

The study of social indicators is valuable for understanding the role that the social sciences play in the political arena. One common pattern is for a particular social indicator to become frozen in place once it takes on political significance, and this can result in ironic consequences. This study traces out the case of indicators of aggregate productivity trends in the United States. These measures were initially developed as part of an underconsumptionist argument that was linked to the political left, but there was considerable debate over different measurement schemes. Over time, one particular measure of trends in aggregate productivity became central for wage negotiations and for government policy. This created a context in which the slower rates of growth of this measure of productivity in the 1970s helped to validate the views of those on the political right who saw the need for greater restrictions on wage gains and government civilian spending. The paper raises questions about the value of this particular measure and ends by emphasizing the problems of locking in place an "objective" social indicator when the reality being measured is in continual flux.

Paine, May 28, 2017 at 06:20 AM

Is not really engaged if you stop with the discover it's not all baby. There is bath water --

Yes indeed
But we must proceed to the necessary task

Throw out as much bath water as we can whilst holding tight to the baby


It's too easy and too useless to simply condemn the whole procedure of indexation
Despite its inevitable contradictions

Paine -> Paine ... Sunday, May 28, 2017 at 06:24 AM

Specifically. Retain the sublime LTV. It never lets us down if we use it with careful skill
Like excalibur
Drawn from the stone

anne -> Paine ... May 28, 2017 at 06:36 AM

Retain the sublime LTV

[ At which point there is no reason for me to read further, since I am not capable of understanding such initials. Does a VTL have fur and growl? ]

Paine -> anne... May 28, 2017 at 08:06 AM

We marxians so reverence the notion We dare not spell it out in full LTV -- Labor theory of value

Once. The bourgeois theory of value until ricardoput too sharp a point on it

And it became the intellectual sword of the exploited toilers

All lasting exchange value is created by social labor

The part of the value of social product exchange thru markets
Not reflected in labors compensation is a product of one or other form of class exploitation

Complication

This includes rewards to innovation
Real cost reduction
And improvements of all sorts
as well as arbitrage wind fall and mere rent

anne -> Paine ... May 28, 2017 at 06:27 AM

It's too easy and too useless to simply condemn the whole procedure of indexation. Despite its inevitable contradictions

[ Really important criticism, which is why I am far more interested in accumulating data for current comparative productivity measures. I find current comparative productivity measures revealing and important, and readily available. ]

anne -> Sandwichman ... May 28, 2017 at 06:23 AM

Criticizing measures of productivity is reasonable, but where are the alternate measures and the data to be used in recording these alternates? Current measures are backed by extensive data and used comparatively the measures so far strike me as meaningful and important.

JF -> Sandwichman ..., May 28, 2017 at 06:43 AM

"It tells us nothing about physical output and THAT, not monetary value is what the concept of productivity implies."

Yes, GDP presentations should also report the data removing the Finance and insurance segments from the statistical program and calculations.

Considering that with the age of the computer and advanced telco capabilities it is silly to include these segments in productivity duscussions, so we need a GDP view that matches.

And as we know these segments grew in terms of top line revenue flows remarkably in a very short time, and this should raise questions about its role in the economic system and whether the views of even the 1980s make sense.

Paine -> libezkova..., May 28, 2017 at 07:57 AM

You could use crude oil or electricity or debt or any numbered entity as the denominator. Thy are all formally similar

Why labor hours ?

This is the labor theory of exchange value in modern bourgeois scientific framing

If we posit a simple historical mission for capitalism it might be the minimizing of the social necessary labor time to produce the material requisites of society itself

Liberating humans from the burden of necessary labor

[Apr 12, 2017] How corporate profit-shifting distorts measured productivity - Equitable Growth

Apr 12, 2017 | equitablegrowth.org

pgl said... April 11, 2017 at 01:19 AM Nick Bunker ( How corporate profit-shifting distorts measured productivity - Equitable Growth ) reports on a paper from economists at Penn State that should interest Brad Setser:

'By shifting profits overseas, economic output that should be counted in the United States ends up being registered in other countries.

This shifting appears to have happened in part due to the rise in "intangible assets." To borrow an example from the four economists, think of a simplified version of the profits from an iPhone. Employees at Apple Inc. design the phone, which is then produced abroad at a cost of $250 and sold to a customer in the United States for $750. If we assume the reason people buy iPhones is the branding and design created by Apple, then a good portion of the $500 net profit is a return on "intangible assets" produced in the United States. But if a company sells the rights to these intangible assets to a subsidiary in a low-tax country, then the profits will end up there.

The result? An increase in the Gross Domestic Product of the low-tax country and a decline in the GDP of the United States without any real change in economic activity.'

Transfer pricing abuse! Of course that Ryan DBCFT tax deform would allow this tax avoidance on a permanent basis in a way that is all perfectly legal. Reply Tuesday, pgl said in reply to Peter K.... "hey would still be taxed on their sales."

Seriously? Most of Apple's sales are abroad. Same for Coca Cola, Boeing, Caterpillar, the list goes on.

Reply Tuesday, April 11, 2017 at 07:47 AM djb said in reply to pgl... yes sales tax might happen in the united states but pgl is talking about corporate tax on profit

transfer pricing manipulates the situation to show most of the profits as being earned in the low tax country. So that lets say the true cost of the manufacture of the iphone is 250 dollars,

they might say that the American subsidiary of the same company went to the low tax country and paid 700 dollars for the iphone

at least say that on paper

that's what he is talking about

sales tax doesn't affect the tax on profit

besides, sales tax is paid over and above the 750 dollars Reply Tuesday, April 11, 2017 at 11:00 AM pgl said in reply to djb... "pgl is talking about corporate tax on profit". Yep - you get it.

Reply Tuesday, April 11, 2017 at 11:56 AM J Johannes Y O Highness said in reply to Repeal 2 Replace 1...
Do you see how deflation fulfills the Keynesian Dream?

By inducing Keynesian Stimulation from Keynesian Expectations. Here is how works :

A car dealer has contract to buy from auto factory set amount of cars each month. Contract allows factory to churn out Tesla-s at steady rate thus efficient clip.

Unlike his customers, savvy dealer watches deflation rate carefully. He holds onto inventory when he expects less or no future deflation, but when he expects greater deflation, he deftly dumps inventory before price drops, accelerates M2V. Deflation causes dealers of each product and service to stimulate economic expansion. Here is my impression of Tyler Cohen :

When a government hardens its currency most of that currency is held by the citizens serving that government. Each citizen then has more buying power, more wealth because of her/his shrewd rulers.

As deflation allows full reserve, full reserve makes the predictions of Nouriel Roubini irrelevant. Full reserve eliminates uncertainty that nauseates business ventures that hire folks.
Awareness!

Get
it --
Reply Tuesday, April 11, 2017 at 11:17 AM Justin Cidertrades said in reply to Johannes Y O Highness...
How, Howard? How does ruler harden the currency?

By spending less, but taxing more, taxing foreigners by way of import duties. Is that what communist rulers of China are now doing? Import tariff? To harden currency thus enrage 45th President?

Don't worry nothing!
Don't worry!
Be happy!

45th will soon become aware. First aware; then, "company, attenzione!
forward march
!!
" Reply Tuesday, April 11, 2017 at 11:38 AM point said in reply to pgl... It's a terrific article, especially showing aggregate debt exceeds aggregate assets through use of tax havens.

On calculating GDP, it sure seems the standard labor arbitrage maneuver of transferring the production of intermediate goods to a favorable labor rate jurisdiction for importation should have implications beyond transfer pricing abuse.

If I, a US citizen, own a US located factory producing product with entirely US located inputs, then transfer an intermediate production stage to a low wage rate jurisdiction, where I still own the entire chain, this seems insufficiently foreign to account as exporting and importing.

People sometimes create "look through" earnings to consolidate unconsolidated results of minority subsidiaries to get a better look at a parent's full results. Something similar could be worthwhile here where a company's "insufficiently foreign" production would be consolidated into a look-through US production number.
Reply Tuesday, April 11, 2017 at 06:20 AM pgl said in reply to point... It is an interesting paper. Glad you read it. I see that PeterK did not. Reply Tuesday, April 11, 2017 at 07:48 AM

[Mar 25, 2017] Is productivity metric as problematic as GDP?

Mar 24, 2017 | cepr.net

anne: March 24, 2017 at 05:21 AM

Marketplace Radio Has Not Heard About the Productivity Slowdown

Marketplace radio had a peculiar piece * asking what the world would have looked like if the North American Free Trade Agreement never had been signed. The piece is odd because it dismisses job concerns associated with NAFTA by telling readers that automation (i.e. productivity growth) has been far more important in costing jobs.

"As in, ATMs replacing bankers, robots displacing welders. Automation is a very old story that goes back 250 years, but it has really picked up in the last couple decades.

"'We economic developers have an old joke,' said Charles Hayes of the Research Triangle Regional Partnership in an interview with Marketplace in 2010. 'The manufacturing facility of the future will employ two people: one will be a man, and one will be a dog. And the man will be there to feed the dog. And the dog will be there to make sure the man doesn't touch the equipment.'

"Ouch. But it turns out technology replaced workers in the course of reporting this very story."

Actually, the Bureau of Labor Statistics tells us the opposite. Productivity growth did pick up from 1995 to 2005, rising back to its 1947 to 1973 Golden Age pace (a period of low unemployment and rapidly rising wages), but has slowed sharply in the last dozen years.

[Graph]

While more rapid productivity growth would allow for faster wage and overall economic growth, no one has a very clear path for raising the rate of productivity growth. It is strange that Marketplace thinks our problem is a too rapid pace of productivity growth.

The piece is right in saying that the jobs impact of NAFTA was relatively limited. Certainly trade with China displaced many more workers. NAFTA may nonetheless have had a negative impact on the wages of many manufacturing workers. It made the threat to move operations to Mexico far more credible and many employers took advantage of this opportunity ** to discourage workers from joining unions and to make wage concessions. It's surprising that the piece did not discuss this effect of NAFTA.

* https://www.marketplace.org/2017/03/23/economy/what-if-nafta-were-never-born

** http://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?article=1018&context=cbpubs

-- Dean Baker

anne said in reply to anne...

https://fred.stlouisfed.org/graph/?g=d6jh

November 1, 2014

Total Factor Productivity for United States, 1952-2014

(Percent Change)


https://fred.stlouisfed.org/graph/?g=d7LU

November 1, 2014

Total Factor Productivity for United States, 1952-2014

(Indexed to 1952)

pgl said in reply to anne... March 24, 2017 at 06:01 AM

Thanks for the data. It confirms what Dean wrote here:

"the Bureau of Labor Statistics tells us the opposite. Productivity growth did pick up from 1995 to 2005, rising back to its 1947 to 1973 Golden Age pace (a period of low unemployment and rapidly rising wages), but has slowed sharply in the last dozen years.

anne said in reply to pgl... March 24, 2017 at 06:10 AM

Looking internationally, I consider the evidence conclusive that productivity growth has slowed significantly since 2005 in countries that have had limited infrastructure development, regardless of the emphasis in those countries on information technology advance and application.

libezkova -> anne... March 25, 2017 at 09:33 AM

And what is productivity ?

== quote ==

The OECD defines it as "the ratio of a volume measure of output to a volume measure of input".] Volume measures of output are normally gross domestic product (GDP) or gross value added (GVA), expressed at constant prices i.e. adjusted for inflation.

== end of quote ==

If you use GDP the result is suspect for the reasons GDP is suspect. If not, then it is sector/industry based metric.

In this sense growth of GDP in 1990th is not only the result of technological changes (Internet, PCs, cell phones) but also looting of the xUSSR economies

And as looting slowed down after 2000 growth of productivity also allowed down.

libezkova -> libezkova... March 25, 2017 at 10:32 AM

Steve Keen pointed out that all production is driven by energy (mostly oil and electricity). And the energy comes ultimately from the sun.

Either it is turned into production via feeding workers, or by fueling machinery (by burning hydrocarbons or indirectly via electricity supply).

That means that growth of productivity is inversely correlated with the price of oil. As the period of cheap hydrocarbons ended (remember $.99 per gallon of gas in 90th) the period of rapid productivity growth ended as well.

One of the aspects od the idea of "secular stagnation" is that high oil prices hit neoliberal economies like a hammer and the period of high oil prices started to undermine neoliberal globalization by making shipping more expensive.

That also means that without continuation of low oil prices the next debt crisis (aka Minsky moment) is eminent for the USA economy.

BTW none of US shale companies is profitable. They are all up to the neck in debt, and their method of extracting oil includes generating a flow of junk bonds. If financing stops most of them will be bankrupt in one year period.

Obama clever game with Iran helped to produce "Obama recovery" due to the period of "normal" oil prices which started in mid 2015.

It probably can be extended for another year or two. What happens next is completely unknown territory. It is clear that the US shale is a card that was already played. It can't be played again as output probably can be substantially raised (say 2 Mbd/day) only with high or very high oil prices (as in above $70 or higher).

After "Obama recovery" (which depends on continuing low oil prices created by clever political maneuvering in Arab world -- Hail Mary pass that worked) we might well face the period of "elevated oil prices" and increased stagnation of the US economy with noticeably higher level of unemployment.

Much depends on Trump playing his trump card of "détente" with Russia which theoretically could extend this period (Russia has the same level of oil production as Saudis and more reserves), but there were to much sand thrown by neocons and DemoRats for this scenario to work. I thing Russia now is no longer interested in partnership with the USA on the basis of maintaining low oil prices -- like KSA today, and might cut output further to get higher oil prices which are vital for their economy. Of course Russia has strong neoliberal fifth column (including pro-western directors of oil companies and oligarchs who have their wealth transferred to Western banks) but even they are pissed off by the USA now.

DemoRats wiped up Anti-Russian hysteria to the level when even contact with Russian official can be a "career limiting move" in the USA.

This hysteria now has its own self-propagating dynamics and is difficult to stop. It might last for the same period of time as McCarthyism hysteria (roughly from 1947 to 1956).

"... "The principal problem for Democrats is that so many media figures and online charlatans are personally benefiting from feeding the base increasingly unhinged, fact-free conspiracies - just as right-wing media polemicists did after both Bill Clinton and Obama were elected - that there are now millions of partisan soldiers absolutely convinced of a Trump/Russia conspiracy for which, at least as of now, there is no evidence. ..."

It put the Democrats and Republicans in sync as two equally warmongering parties, but what good that would bring for the American people and the world is hard to fathom.

The USA lost the possibility of switching personal car fleet to more economical hybrid models by adopting some drastic measures and now is less prepared for a new period of high oil prices. People are still buying SUV which became the most popular type of personal transportation in the USA, and small tracks.

On the electricity front there are some problems too. The looting of Russia and the flow of cheap uranium stopped. Building of high voltage East -West line necessary for substantial wind and solar production is still on the drawing board.

[Mar 25, 2017] Like most integral metrics (and, especially, like GDP) productivity growth is very suspect. Its importance was artificially amplified under neoliberalism to the sacred cow status

Notable quotes:
"... The long term absence of convergence in productivity growth between developed and developing countries should be of considerable concern, but seems overlooked even in settings such as trade negotiations in which such concerns especially need to be addressed. ..."
"... You need to understand that like most "integral" metrics (and, especially, like GDP) productivity growth is very suspect. Its importance was artificially amplified under neoliberalism to the "sacred cow" status. ..."
"... While the strong earnings growth of US-based corporations might, at least partially, be real and not all accounting tricks, the question arise what part of those gains are coming from improvements in domestic productivity and what part from offshoring. ..."
"... Productivity growth is an important part of the system of neoliberal myths (along with "cult of GDP" ) and this mythology is directed at deceiving the public that it is indirectly benefitting from the neoliberal transformation of the society, while in reality we observe impoverishment of the majority of population. As in " The USA is the country with fastest productivity grown." Rejoice. ..."
Mar 25, 2017 | economistsview.typepad.com

anne -> anne... March 25, 2017 at 10:31 AM

The long term absence of convergence in productivity growth between developed and developing countries should be of considerable concern, but seems overlooked even in settings such as trade negotiations in which such concerns especially need to be addressed.

libezkova -> anne..., March 25, 2017 at 04:42 PM

Anne,

You need to understand that like most "integral" metrics (and, especially, like GDP) productivity growth is very suspect. Its importance was artificially amplified under neoliberalism to the "sacred cow" status.

Government bureaucrats also are afraid to tell the truth. Richard Benson , a well-known critic of government labor statistics, who wrote several insightful papers on the subject, noted "The BLS is mindful of how politically sensitive any reported job data is to the White House, so there is a strong bias for the government bureaucrats to publish a favorable jobs report."

One hidden fact is that it is offshoring that is the driver of corporate profits and it distorts "productivity" statistics.

While the strong earnings growth of US-based corporations might, at least partially, be real and not all accounting tricks, the question arise what part of those gains are coming from improvements in domestic productivity and what part from offshoring.

Rising stratification of the society also affects this metric (via the ratio of "have more" vs "have not")

Productivity growth is an important part of the system of neoliberal myths (along with "cult of GDP" ) and this mythology is directed at deceiving the public that it is indirectly benefitting from the neoliberal transformation of the society, while in reality we observe impoverishment of the majority of population. As in " The USA is the country with fastest productivity grown." Rejoice.

It is also simplifies the adoption of pro financial oligarchy policies masked with technocratic jargon -- policies that destroyed New Deal and hurt the majority of the population ("rising labor costs" is one such usage).

Adopting technocratic posture (economics like Boeing there by using certain controls you can change flight course) serves like anesthetic. Rephrasing Marx we can say "neoliberal economics is the opium for the people". And it is by design. which confirms the iron law of oligarchy in a very interesting, unexpected way.

That's why jargon use by priests of neo-classical economics is almost in-penetrable for an ordinary person. The well known neoliberal stooge Greenspan was a real master of it.

So the importance assigned to such measures as GDP and productivity is, to a certain extent, politically motivated.

For example, in the denominator we have all those hedge funds managers and other members of financial oligarchy bonuses, and top managers exorbitant remuneration within all kinds of firms (which definitely drives productivity growth down ;-)

In the numerator are military expenses and income of financial sector (and now another somewhat parasitic sector close to banking -- medical insurance industry).

Both are essentially money stolen from people and, to a certain extent, from "real" economy.

Of cause, not all money are wasted as military spending in addition to war for neoliberal empire expansion (and related loot) also employs a lot of people and fund fundamental research; the myth about innovation of Silicon Valley is partially a myth; in reality in many cases this is a direct transfer of technology from the military sector.

Among the examples are integrated circuits, laser, wireless, Internet, multiprocessing, etc; even some algorithmic languages :-).

So when you have such fuzzy numerator and denominator, the result is also fuzzy and all conclusions based on them might be not worth electrons with which they are depicted on our screens.

As I mentioned before, productivity should be somewhat inversely correlated with the oil price, as "amount of energy per worker" is what defines at the end worker's productivity (via the level of automation, mechanization of his work). That's were the USA strong (or week, if you wish) point is -- it has the largest consumption of energy per capita in the world. If we normalize productivity via per capita energy consumption we will get a more interesting picture.

[Mar 25, 2017] Is productivity metric as problemtic as GDP?

Notable quotes:
"... The OECD defines it as "the ratio of a volume measure of output to a volume measure of input".] Volume measures of output are normally gross domestic product (GDP) or gross value added (GVA), expressed at constant prices i.e. adjusted for inflation. ..."
"... If you use GDP the result is suspect for the reasons GDP is suspect. If not, then it is sector/industry based metric. ..."
"... In this sense growth of GDP in 1990th is not only the result of technological changes (Internet, PCs, cell phones) but also looting of the xUSSR economies ..."
"... And as looting slowed down after 2000 growth of productivity also allowed down. ..."
"... One of the aspects of the idea of "secular stagnation" is that high oil prices hit neoliberal economies like a hammer and the period of high oil prices started to undermine neoliberal globalization by making shipping more expensive. ..."
"... BTW none of US shale companies is profitable. They are all up to the neck in debt, and their method of extracting oil includes generating a flow of junk bonds. If financing stops most of them will be bankrupt in one year period. ..."
Mar 24, 2017 | cepr.net

anne: March 24, 2017 at 05:21 AM

Marketplace Radio Has Not Heard About the Productivity Slowdown

Marketplace radio had a peculiar piece * asking what the world would have looked like if the North American Free Trade Agreement never had been signed. The piece is odd because it dismisses job concerns associated with NAFTA by telling readers that automation (i.e. productivity growth) has been far more important in costing jobs.

"As in, ATMs replacing bankers, robots displacing welders. Automation is a very old story that goes back 250 years, but it has really picked up in the last couple decades.

"'We economic developers have an old joke,' said Charles Hayes of the Research Triangle Regional Partnership in an interview with Marketplace in 2010. 'The manufacturing facility of the future will employ two people: one will be a man, and one will be a dog. And the man will be there to feed the dog. And the dog will be there to make sure the man doesn't touch the equipment.'

"Ouch. But it turns out technology replaced workers in the course of reporting this very story."

Actually, the Bureau of Labor Statistics tells us the opposite. Productivity growth did pick up from 1995 to 2005, rising back to its 1947 to 1973 Golden Age pace (a period of low unemployment and rapidly rising wages), but has slowed sharply in the last dozen years.

[Graph]

While more rapid productivity growth would allow for faster wage and overall economic growth, no one has a very clear path for raising the rate of productivity growth. It is strange that Marketplace thinks our problem is a too rapid pace of productivity growth.

The piece is right in saying that the jobs impact of NAFTA was relatively limited. Certainly trade with China displaced many more workers. NAFTA may nonetheless have had a negative impact on the wages of many manufacturing workers. It made the threat to move operations to Mexico far more credible and many employers took advantage of this opportunity ** to discourage workers from joining unions and to make wage concessions. It's surprising that the piece did not discuss this effect of NAFTA.

* https://www.marketplace.org/2017/03/23/economy/what-if-nafta-were-never-born

** http://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?article=1018&context=cbpubs

-- Dean Baker

anne said in reply to anne...

https://fred.stlouisfed.org/graph/?g=d6jh

November 1, 2014

Total Factor Productivity for United States, 1952-2014

(Percent Change)


https://fred.stlouisfed.org/graph/?g=d7LU

November 1, 2014

Total Factor Productivity for United States, 1952-2014

(Indexed to 1952)

pgl said in reply to anne... March 24, 2017 at 06:01 AM

Thanks for the data. It confirms what Dean wrote here:

"the Bureau of Labor Statistics tells us the opposite. Productivity growth did pick up from 1995 to 2005, rising back to its 1947 to 1973 Golden Age pace (a period of low unemployment and rapidly rising wages), but has slowed sharply in the last dozen years.

anne said in reply to pgl... March 24, 2017 at 06:10 AM

Looking internationally, I consider the evidence conclusive that productivity growth has slowed significantly since 2005 in countries that have had limited infrastructure development, regardless of the emphasis in those countries on information technology advance and application.

libezkova -> anne... March 25, 2017 at 09:33 AM

And what is productivity ?

== quote ==

The OECD defines it as "the ratio of a volume measure of output to a volume measure of input".] Volume measures of output are normally gross domestic product (GDP) or gross value added (GVA), expressed at constant prices i.e. adjusted for inflation.

== end of quote ==

If you use GDP the result is suspect for the reasons GDP is suspect. If not, then it is sector/industry based metric.

In this sense growth of GDP in 1990th is not only the result of technological changes (Internet, PCs, cell phones) but also looting of the xUSSR economies

And as looting slowed down after 2000 growth of productivity also allowed down.

libezkova -> libezkova... March 25, 2017 at 10:32 AM

Steve Keen pointed out that all production is driven by energy (mostly oil and electricity). And the energy comes ultimately from the sun.

Either it is turned into production via feeding workers, or by fueling machinery (by burning hydrocarbons or indirectly via electricity supply).

That means that growth of productivity is inversely correlated with the price of oil. As the period of cheap hydrocarbons ended (remember $.99 per gallon of gas in 90th) the period of rapid productivity growth ended as well.

One of the aspects of the idea of "secular stagnation" is that high oil prices hit neoliberal economies like a hammer and the period of high oil prices started to undermine neoliberal globalization by making shipping more expensive.

That also means that without continuation of low oil prices the next debt crisis (aka Minsky moment) is eminent for the USA economy.

BTW none of US shale companies is profitable. They are all up to the neck in debt, and their method of extracting oil includes generating a flow of junk bonds. If financing stops most of them will be bankrupt in one year period.

Obama clever game with Iran helped to produce "Obama recovery" due to the period of "normal" oil prices which started in mid 2015.

It probably can be extended for another year or two. What happens next is completely unknown territory. It is clear that the US shale is a card that was already played. It can't be played again as output probably can be substantially raised (say 2 Mbd/day) only with high or very high oil prices (as in above $70 or higher).

After "Obama recovery" (which depends on continuing low oil prices created by clever political maneuvering in Arab world -- Hail Mary pass that worked) we might well face the period of "elevated oil prices" and increased stagnation of the US economy with noticeably higher level of unemployment.

Much depends on Trump playing his trump card of "détente" with Russia which theoretically could extend this period (Russia has the same level of oil production as Saudis and more reserves), but there were to much sand thrown by neocons and DemoRats for this scenario to work. I thing Russia now is no longer interested in partnership with the USA on the basis of maintaining low oil prices -- like KSA today, and might cut output further to get higher oil prices which are vital for their economy. Of course Russia has strong neoliberal fifth column (including pro-western directors of oil companies and oligarchs who have their wealth transferred to Western banks) but even they are pissed off by the USA now.

DemoRats wiped up Anti-Russian hysteria to the level when even contact with Russian official can be a "career limiting move" in the USA.

This hysteria now has its own self-propagating dynamics and is difficult to stop. It might last for the same period of time as McCarthyism hysteria (roughly from 1947 to 1956).

"... "The principal problem for Democrats is that so many media figures and online charlatans are personally benefiting from feeding the base increasingly unhinged, fact-free conspiracies - just as right-wing media polemicists did after both Bill Clinton and Obama were elected - that there are now millions of partisan soldiers absolutely convinced of a Trump/Russia conspiracy for which, at least as of now, there is no evidence. ..."

It put the Democrats and Republicans in sync as two equally warmongering parties, but what good that would bring for the American people and the world is hard to fathom.

The USA lost the possibility of switching personal car fleet to more economical hybrid models by adopting some drastic measures and now is less prepared for a new period of high oil prices. People are still buying SUV which became the most popular type of personal transportation in the USA, and small tracks.

On the electricity front there are some problems too. The looting of Russia and the flow of cheap uranium stopped. Building of high voltage East -West line necessary for substantial wind and solar production is still on the drawing board.

Of the various statistics that economists follow, productivity measure are probably the most suspect in terms of whether they really measure what people assume they measure

Economist's View
Syaloch -> Fred C. Dobbs...

Of the various statistics that economists follow, productivity measure are probably the most suspect in terms of whether they really measure what people assume they measure.

Also, Krugman's joke about Apple may actually reflect an underlying dynamic that keeps certain economic trends from being reflecting in the productivity numbers.

From Brynjolfsson and McAfee's book _Race Against the Machine_:

"[Productivity statistics] are far from perfect. They don't do a very good job of accounting for quality, variety, timeliness, customer service, or other hard-to-measure aspects of output. While bushels of wheat and tons of steel are relatively easy to count, the quality of a teacher's instruction, the value of more cereal choices in a supermarket, or the ability to get money from an ATM 24 hours a day is harder to assess.

"Compounding this measurement problem is the fact that free digital goods like Facebook, Wikipedia, and YouTube are essentially invisible to productivity statistics. As the Internet and mobile telephony deliver more and more free services, and people spend more of their waking hours consuming them, this source of measurement error becomes increasingly important. Furthermore, most government services are simply valued at cost, which implicitly assumes zero productivity growth for this entire sector, regardless of whether true productivity is rising at levels comparable to the rest of the economy.

"A final source of measurement error comes from health care, a particularly large and important segment of the economy. Health care productivity is poorly measured and often assumed to be stagnant, yet Americans live on average about 10 years longer today than they did in 1960. This is enormously valuable, but it is not counted in our productivity data. According to economist William Nordhaus, "to a first approximation, the economic value of increases in longevity over the twentieth century is about as large as the value of measured growth in non-health goods and services."

"Earlier eras also had significant unmeasured quality components, such as the welfare gains from telephones, or disease reductions from antibiotics. Furthermore, there are also areas where the productivity statistics overestimate growth, as when they fail to account for increases in pollution or when increased crime leads people to spend more on crime-deterring goods and services. On balance, the official productivity data likely underestimate the true improvements of our living standards over time."

Brynjolfsson and McAfee were primarily focused on US productivity measures, but I assume other countries face the same measurement challenges.

See also this commentary on the limitations of total factor productivity measures:

http://equitablegrowth.org/news/looking-roots-total-factor-productivity-growth/

Top 14 spurious productivity surveys

Snakes and Ladders

Last week I wrote about workplace productivity, and claimed barely a week passes without someone somewhere publishing an outlandish, pr-inspired survey supposedly exposing a way in which workers waste time. Eager to maximise my own productivity, and eager to minimise the workplace productivity of timesonline readers, I kept a record of the weirdest ones as I did my research, and am now delighted to present a list of the top 14 most ridiculous productivity surveys, as presented in the press, in reverse order of spuriousness. Somehow "14" seems an apt number for an arena that routinely sees the production of bizarrely precise estimates.

  1. Underperforming middle managers are costing the British industry billions of pounds a year in lost productivity, according to management consultants the Hay Group.
  2. Meetings with little or no value are costing millions of pounds in lost productivity, according to Bibby Financial Services.
  3. British firms fear the Rugby World Cup will cost £461m in lost productivity as staff use corporate systems to keep track of their teams while they should be working according to web content and email security firm Marshal.
  4. Workers sleeping-in costs the British economy £619m a year in lost productivity, according to fresh research from hotel chain Travelodge.
  5. Computer crashes, fire drills, gossiping and bad timekeeping and pointless meetings and making coffee and other "time wasting" costs British firms up to £6.85bn a year, according to recruitment firm Office Angels.
  6. Almost one-third of office staff admit to gambling online during working hours, costing their employers more than £300m a year in lost productivity, according to research published by Morse, the business and technology consultancy.
  7. Big Brother is costing British businesses £1.4m a week in lost productivity as employees log on to see the latest antics online, according to software company websense.
  8. The four weeks of the 2006 World Cup are set to cost the average UK business £8400 in lost productivity per 100 employees, predicts the web content filtering vendor Marshal.
  9. Office politics costs business £7.8bn a year, according to a survey of temporary workers by reed.co.uk.
  10. Spam costs American companies more than $70bn a year in lost worker productivity, according to a study released by Nucleus Research.
  11. A new white paper from Cornerstone Imaging has concluded that inadequate display monitors are costing businesses thousands of pounds every year in lost productivity.
  12. Independent research has found that fragmented communications means that enterprises of 1000 persons could leak nearly $13m a year in lost productivity and avoidable expenses, according to independent research commissioned by Siemens.
  13. A typical European employee wastes an average of 67 minutes every day looking for company information – meaning that an organisation with a 1000 staff on £34,000 a year wastes £5.39m a year as staff look for company information to make decisions, according to Information Builders, the leader in business intelligence solutions and integration.
  14. Coughing costs the UK economy £875m a year in lost productivity, according to the British Thoracic Society.

Personally, I will only die happy if I see a survey calculating the amount of time workers waste reading surveys on workplace productivity.

Posted by Sathnam Sanghera on November 29, 2007 in Office life | Permalink | Comments (0) | TrackBack (0) | Email this post