[Nesster]

An interesting analysis in the atlantic:
Squeezed Dry: Why Americans Work So Hard but Feel So Poor - Derek Thompson - Business - The Atlantic

Sped up, slimmed down, squeezed dry, or simply shut out, the American worker faces an unprecedented slump. The numbers say we're getting better at our jobs, but paychecks suggest we're worse off.

Since the recovery began, corporate profits have captured nearly 90 percent of the growth in real income. Wages and salaries have accounted for 1 percent. That's "unprecedented," say Northeastern University economists, but it ain't new. Productivity (that's work/time) has increased seven times faster than wages in the last 30 years.

There's a lot of online ink about the productivity paradox, memorably deemed our "Speed-up Crisis" in a provocative article by Monika Bauerlein and Clara Jeffery, coeditors of Mother Jones. It boils down to one question. Why does it seem like people have to work harder and harder to make the same amount of money?

HOW WE GOT HERE
(or: HOW CONSUMERS FOUGHT WORKERS, AND WON)


I want to try to tell this story without using the word corporation. Yes, corporate profits are up 22 percent since 2007 while employment is down. Yes, companies have swapped unionized workforces for universal workforces by letting jobs expire at home while hiring overseas. These are important pieces to the puzzle. But I want to tell the story starting with another piece. Productivity.

Productivity means work divided by time. It tells you how much stuff our economy makes, and how efficiently we make it. Over time, higher productivity leads to wealth. But in the last 30 years, the average worker hasn't felt very enriched by all his or her extra work. Take a look.

Productivity is not evil. For a consumer, it's bliss. It means iPods and cheap toasters. "What people forget about productivity is that it's not just about becoming more efficient by using fewer workers," says James Manyika, Director of the McKinsey Global Institute. "It also means creating more valuable things. For example, Apple has driven productivity by expanding our basket of products." Workers have a less rosy view. If you're in manufacturing or IT services, for example, you've seen millions of jobs turned over to robots and Rajasthan.


This conflict between consumers and workers is an important piece of the productivity puzzle. Workers have lost power since the heyday of organized labor in the mid-20th century. Meanwhile, consumers are in their heyday right now. Family spending dominates the U.S. economy more than any other big economy.

But wait, you're thinking, how can the middle class support a consumer-dominated economy if the middle class isn't making more money? Four reasons. First, in the 1960s, women joined the workforce, and dual-income households grew. Second, in the 1970s and 1980s, white collar workers started putting in longer hours. Third, in the 2000s, the housing boom made families feel richer than their paychecks. Fourth, consumers discovered it was more affordable to buy clothes, food, electronics -- you know, stuff -- despite poor salaries. Why?

Stuff got cheap.
IF WORK IS CHEAP, WHY IS LIFE SO EXPENSIVE?
(or: PRODUCTIVITY IN ALL THE WRONG PLACES)



Here's a theory. In the last 30 years, productivity grew, but it didn't make you rich because all the benefits went to make stuff cheaper. You can see this in Walmart and on your computer screen. Food and clothes have never been more affordable. Information has never been so easily accessible. Electronics have never been so advanced. Consumer products have never been so diverse, effective, and cheap.

If everything is getting cheaper and better, why don't you feel richer? Because the basic necessities -- homes, gasoline, health care, and education -- are not getting cheaper. Real housing prices slowly increased for 30 years before the housing boom. Real gas prices are the same today as in the 1930s. The cost of health care is growing faster than wages. Higher education costs are growing even faster.

Houses, gasoline, health care and education make up the core of our day-to-day life. The typical American family spends half its money on housing and transportation. The economy spends one out of four dollars on health care ($2.6 trillion) and education ($1 trillion).

This is the American worker's saga. The stuff you're making is getting cheaper. The stuff you need is getting more expensive. That's why you feel so squeezed.
"That's a provocative idea," James Manyika tells me on the phone when I read through my theory. "I want to make a key point." The things getting more expensive fall into two categories, he said. You have the failures of productivity, including education, government, construction, and health care. Then you've got natural economic scarcity, like physical living space and crude oil.
....

[shooz]

Who measures the productivity of the top 1%?

[mikemike]

"That's a provocative idea," James Manyika tells me on the phone when I read through my theory. "I want to make a key point." The things getting more expensive fall into two categories, he said. You have the failures of productivity, including education, government, construction, and health care. Then you've got natural economic scarcity, like physical living space and crude oil.

Interesting article. I may not be the average worker because my wage has been growing by 5-15% each year during the recession. But I have never really seen a problem because I have always tried to control those expensive necessities. I found a college that was a great value, earned a scholarship, and worked in my field to cover the remaining expenses which meant that I graduated debt free with 4 years experience. I have never relied on direct government assistance so I never get squeezed by their inefficiency, except when I need to renew my drivers license. As far as the living space and energy goes, it helps to be as personally efficient as possible and to live well below your means in a dense area where you can ride your bike instead of drive. That also helps to keep you healthy so you can avoid the expensive health care system while living in a smaller place keeps you from accumulating too much excessive junk.

[Nesster]

Well. Yes.

I remember well when the Productivity Gap became a business/Republican topic - I was a Forbes subscriber then - back in the mid 80s. The terms of 'productivity' were being set as more work for the same pay, or less pay. At the time this was thought of in terms of how to keep American business competetive with low-cost regions.

Of course as soon as it became technologically and financially feasible, the jobs started to move to these low cost regions.

The leisure utopia of the 60s and 70s - where technology and productivity freed up time - was on its way to being replaced by the workaholic utopia - where technology takes up more time and makes/allows us to work longer and at home...

Note that this definition of productivity has become ingrained, and within it implicitly is the stagnation of worker pay and the accrual of profit to the corporations and their owners and managers. With a different definition, one less short sighted, we may have had productivity growth where some of the benefit also accrued to the worker. Instead, the worker was bought off with cheap Wal-Mart stuff.

[Nesster]

Interesting article. I may not be the average worker because my wage has been growing by 5-15% each year during the recession. But I have never really seen a problem because I have always tried to control those expensive necessities. I found a college that was a great value, earned a scholarship, and worked in my field to cover the remaining expenses which meant that I graduated debt free with 4 years experience. I have never relied on direct government assistance so I never get squeezed by their inefficiency, except when I need to renew my drivers license. As far as the living space and energy goes, it helps to be as personally efficient as possible and to live well below your means in a dense area where you can ride your bike instead of drive. That also helps to keep you healthy so you can avoid the expensive health care system while living in a smaller place keeps you from accumulating too much excessive junk.

Interesting observation, Mike -- and this in some ways goes back to the 'Small is Beautiful' ethos that was flattened by the Productivity Gap.

The reasonable-conservative take on the 'bow' graph would be to suggest that those industries - and the government - need to take a course of Productivity Gap medicine, and become more productive and efficient. The article gets close to this by suggesting that as medical consumers we don't have the info, say, we have about a mutual fund's cost structure.

Getting back to Forbes, they preached looking at mutual fund cost structures way back when... Good advice that. But they never made the effort to rub our noses at medical cost structures, not in the same way.

And, there was an article that makes my top 10 stupidity list: once they ran a cost analysis of the ATM, to show why it was reasonable for the bank to charge a fee! Never mind that the live teller in the bank branch costs much much more than an ATM machine. In fact, as Forbes became more of an industry lap dog, I let my subcription lapse.

[GeneV]

Interesting article. I may not be the average worker.

This is the understatement. Most libertarian theory assumes that everyone is capable of doing what the brightest of us do. It is not realistic. I had a full scholarship for 4 years of college and 3 years of law school, and I also picked my schools to some degree on that basis. Nevertheless, by their nature, those scholarships can't go to everyone.

Somewhere in your scholarship is probably some government help, too.

[Nesster]

A thing that makes this interesting is happening now: the Productivity thing is extending to the white-collar professionals, who - relatively speaking - have remained less affected, unless it is their industry that tanks. That is, the upper middle class is starting to feel the strain. As this is a vocal and well-heard group (i.e. the opinion shapers, think tankers, tenured academics, lawyers and doctors and middle managers and techies, real estate types, and so on) the 'adult conversation' may turn interesting.

[mikemike]

This is the understatement. Most libertarian theory assumes that everyone is capable of doing what the brightest of us do. It is not realistic. I had a full scholarship for 4 years of college and 3 years of law school, and I also picked my schools to some degree on that basis. Nevertheless, by their nature, those scholarships can't go to everyone.

Somewhere in your scholarship is probably some government help, too.

The flip side of the coin is that the opposite end of the economic/political theory states that outcomes should be equalized regardless of what people are actually capable of doing. Equally unrealistic.

I did have a TOPS scholarship, which is a Louisiana merit based scholarship for residents attending in state schools and I went to a public school which meant in state tuition. I was not eligible for a penny of federal aid which is all need based (ie if you or your parents make too much or have too many assets you don't get any help). I had some private scholarships to the point where tuition was fully paid although the state legislature restricts the university's ability to set tuition rates so they have to charge all kinds of wacky mandatory "fees" (equal to about 1/4 the tuition per semester) to cover the gap between actual costs and total tuition plus state funding revenue. Those "fees" plus room, board, books, food, and other expenses are what I worked to cover on my own since my parents cut me off as soon as I turned 18 (3 days after my HS graduation).

For my masters degree my company paid for half of it and I paid the other half out of pocket. I'm sure the company deducted some of those expenses off their tax bill and I certainly took the federal tax credits available. Not that either of these loopholes was necessary to motivate me to go back to school since I was doing it for my love of learning.

The other thing about higher education is that too many people might be going for it and doing it for the wrong reasons. But that is a whole different topic.

[mikemike]

A thing that makes this interesting is happening now: the Productivity thing is extending to the white-collar professionals, who - relatively speaking - have remained less affected, unless it is their industry that tanks. That is, the upper middle class is starting to feel the strain. As this is a vocal and well-heard group (i.e. the opinion shapers, think tankers, tenured academics, lawyers and doctors and middle managers and techies, real estate types, and so on) the 'adult conversation' may turn interesting.

My industry definitely is affected, every job we bid we are competing against other firms who have a small team here and a huge team in Hyderabad. We do all of our development and work onshore in-house and we are able to win and be cost competitive. In recent years, it has been even easier since the costs of doing business in India have been increasing by about 10% per year while ours haven't been going up nearly that fast and when companies try to copy the off-shore business model their best people get seriously miffed and start looking around.

[Nesster]

The flip side of the coin is that the opposite end of the economic/political theory states that outcomes should be equalized regardless of what people are actually capable of doing. Equally unrealistic.

Hmm, which theory says that? Certainly communist theory has no purchase in the States

The dominant left theory takes statistics and attempts to compensate for 'starting' conditions, and then measure the effect by outcomes. The underlying assumption is that society is more stable when economic opportunity is more equally available - sort of like saying, photography is better off the more amateurs get decent results.

As I've written before, the top 1% is the top 1% regardless - whether one starts from the worst poverty or with a silver spoon... the liberal politics attempts to do something for the other 99%... and one of the less talked about questions has to do with wnat further % will make it out of the poverty cycle and into the middle class, and at what cost?

In terms of photography, say, the statistics might show that 1% of soccer moms become professional photographers, and the rest keep taking very few and somewhat lousy snapshots. So you address this by making better point-n-shoots (the tech/business solution) and providing funding for childcare and educational opportunities... And let's say being a soccer mom is a Bad Thing for Society Based on outcomes, more than likely that 1% remains more or less the same, while another 5% become part time pro photographers. And perhaps 60% end up taking better pictures. Depending on your political interest, you may point out that this costly program didn't give us any more ex-soccer mom superstars - or you might point out that actually, that 1% now is part of a more vibrant 6%, or that with another $100 billion we can get the rest of the 40% out from snap-shot hell

We do all of our development and work onshore in-house and we are able to win and be cost competitive. In recent years, it has been even easier since the costs of doing business in India have been increasing by about 10% per year while ours haven't been going up nearly that fast and when companies try to copy the off-shore business model their best people get seriously miffed and start looking around.

Good for you! Here again we get some of the Vocal group - the workers management actually gets bothered about enough to look up from the spreadsheets...

[newarts]

Am I reading the first figure correctly? For example, I think it says that in 1979, 100 units of effort produced 100 units of product, while in 2000 the same 100 units of effort produced about 140 units of product.

If this extra 40% of product were distributed to the people who created it wouldn't their real income have increased by 40%? - ie. the same effort buys 40% more stuff?

Does the growing gap between overall real income and productivity represent a transfer of wealth away from those producing it?

[Nesster]

Yes, that is what the green productivity line seems to be saying... though there are qualitative as well as quantitative components to that productivity gain.

As far as that 40% going to the workers - not even in a Communist system!

However, in a functioning capitalist system, under the more traditional view of productivity accruing to workers as well as the owners and managers, a portion of the gains should have gone to the workers. Instead, just about all the gains went to the owners and managers.

This was possible, it is argued, because most 'stuff' got better, cheaper, smaller, faster - i.e. some of the gains went to the consumer.

Whenever I think about life in a lower income / lower cost region, I keep coming to the same problems: doesn't a Chevy cost the same, pretty much, anywhere in the US?

[mikemike]

Whenever I think about life in a lower income / lower cost region, I keep coming to the same problems: doesn't a Chevy cost the same, pretty much, anywhere in the US?

Yes, the car costs the same, but...
Your housing and other costs are lower which means that you have a better opportunity to save up and pay for the car cash instead of financing it.
You don't pay as much taxes when you purchase, register, inspect, etc. or paying tolls to use the car.
You aren't surrounded by as many luxury cars which keeps the green eye of jealousy in check.
You might be able to afford living closer to work which means lower transportation costs.

When I compare what I make here to what I could make in silicon valley, I am earning 80% of the prevailing wage there and my wife is earning about 95% while our living expenses are more than 50% lower. If you factor in the progressive taxes we would need a salary increases of almost 150% to make it worth our while.

[shooz]

So then, we should all move to New Orleans?
I fail to see what any of your comments has to do with the OP.
It would seem you and you wife need to take a large pay cut for the good of the corporation.

[GeneV]

The flip side of the coin is that the opposite end of the economic/political theory states that outcomes should be equalized regardless of what people are actually capable of doing. Equally unrealistic.

Not really. There is a great deal of daylight between what it takes to beat out other talented students for a few choice scholarships, and what it takes to be a successful student who may achieve well after college.