US productivity is set to decline for the first time in three decades, according to forecasts from the influential business research organisation the Conference Board. The level of productivity, which is the amount produced per hour of labour, is decisive for living standards. It is extremely difficult to increase the living standards of the mass of the population without increasing productivity, and impossible to do so on a sustained basis. The Conference Board is forecasting US productivity will decline in 2016.
The Financial Times quotes Bart van Ark, the Conference Board’s chief economist saying, “Last year it looked like we were entering into a productivity crisis: now we are right in it”.
Social and political implications of economic stagnation coming. American dream fading. This will be a challenge for the next administration and the next congress.
US productivity declines
Michael Burke. economist, Social Economic Bulletin
6 comments:
"The level of productivity, which is the amount produced per hour of labour, "
You have to be careful here Tom, the way economists look at it, removing a lot of pure rent (imo a good thing) from an economy would have the same effect... ie their 'productivity' so-called would be seen to go down...
the higher the rent, the higher the 'productivity'...
Labor productivity is the ration of output to input. For a country it is GDP over labor hours. If GDP declines or labor hours increase cet par, then productivity declines. Vice versa for the opposite conditions.
Reducing economic rent will reduce NGDP through lower prices (lower price at the pump, for instance), hence, productivity if labor hours are constant.
The question is therefore what is the relationship of actual output in terms of actual labor hours. If this is declining, then technological advances are not keeping pace with population growth and there will be less real goods relative to potential customers.
If economic rent is removed then real wages will increase in the short term (more purchasing power) as long as quantity of goods does not decline. But lower prices will affect profits, so firms will attempt to maintain profit share either by increasing prices or reducing wages.
"It is extremely difficult to increase the living standards of the mass of the population without increasing productivity,"
The people receiving high rents have high living standards...
So on the one hand we are saying rent is bad, and then on the other hand when we get the rent out like we have done over the last year... we are lamenting the results of said rent removal...
Which one is it????
Or is this all part of the vast "neo-liberal conspiracy!!!!" intended to confuse us?
Depends on whether tech innovation is not keeping pace with population growth or whether the issue is more related to lower oil price.
The former is a bit controversy in econ right now, led by the work of Robert Gordon positing the innovation/investment are lagging, implying that productivity and living standard will decline. I don't think that there is a consensus on this yet.
Incidentally, Schumpeter saw this as that actual challenge to capitalism rather than the reasons that Marx arrived at through his analysis. Marx was not aware of the huge technological advances that would take place, and Schumpeter doubted that they were sustainable, more for political reasons than economic. Capitalism is based on entrepreneurship and entrepreneurship is cultured by economic liberalism. But economic liberalism is not compatible with social and political liberalism, so it would be restricted in order to recover policy space for welfare. This would eventually lead to the failure of capitalism based on the innovation-creative destruction (disruption) model and the rise of socialism, which puts the focus on welfare.
Even worse. With economic stagnation, it's doubly hard for the masses to support redistributive policies.
Is it social security and medicare payments that are reducing average productivity? Or is that high-wage workers are retiring and being replaced with low wage workers? Manufacturing companies have been shutting down in droves with the higher dollar and workers are rapidly moving to lower productivity service industry, education, retial, health care type jobs. If you've spent any time looking at the productivity models used by our econometric fellas, you understand the models have hideous assumptions about price = quantity, quality is generally ignored, back-failures and negative-production or destruction aren't included, people that are unemployed aren't included in the average as zeros, but just excluded... the problems are so bad that the productivity numbers mean less than nothing, they are purposely deceptive to enable ideological claims that are embedded in the models to be asserted as patterns in data. Awful, Awful, stuff.
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