The Productivity – Wages Pendulum Swings

A recent Associated Press article titled “More wages, no more work” reprinted in my local newspaper, set off my “HUH??” alarm. This article bemoaned the risk to our standard of living posed by the flattened productivity of Ameican workers in September as against the wage increases that we were (doubtless undeservedly) enjoying. Hello?!

I am simultaneously an employee of a medium-sized company and an entrepreneur with my own consulting practice. I know the theoretical factors of the wages and productivity and “standard of living” and inflation equation. I also know the economic reality I and many others live every day.

Some Perspective

That article didn’t accurately represent the recent comparables found in articles such as “Real wages fail to match a rise in productivity” by Steven Greenhouse and David Leonhardt in The New York Times, August 28, 2006, Section A; Column 6; National Desk; Pg. 1. and other local newspapers’ business sections in August and September that carried the same quarter’s statistical information with related local corporations’ profit and local workers’ wage stats.

I’d ask of the current AP article, what about the “only so much blood from a person, much less a turnip” factor in worker productivity? And, trust me, employers have turned employees into turnips over the past five years. You know what companies call experienced, well-compensated workers who raise issues of common sense in the face of foolish executive-driven tactics? “Fat.”

Too many companies have in the past five years, when their profits and CEOs’ salaries soared while workers’ salaries flat-lined, saved on the cost of productivity-tools (such as automation of rote activities) for their workers while demanding longer hours of salaried workers who don’t get overtime pay. Those employers who have borne the cost of productivity tools have compensated by cutting back on the number of workers beyond the truly proporitonate ratio of increased output those tools provide. If the tool enables 20% more work per worker, cut the staff by 30% and demand 10% more hours per remaining employee — heck, they’ll be glad they weren’t laid off. What has in fact happened is that workers have worked longer hours for flat wages, and (with or without productivity tools) the workers’ production capability is now maxed-out.

Try telling such a worker that “rising productivity is the only way you get a higher standard of living”! Yes, I know, in economic theory, that’s true. But you’ve got a 50/50 chance of he’ll either laugh at you or punch your lights out. He knows that the way his employer has been squeezing higher productivity out of him for the past 5 years (with layoffs everywhere, you’re lucky to have job so just work longer/harder at it for the same salary) has diminished his standard of living. He sleeps less, sees family less, and–against the inflation already in insurance and energy costs–is providing less well for his family.

That AP article says “Increased output means that companies can pay their workers more without having to raise the cost of their products….” But during the previous five years of increased output, those wages did not increase. Energy cost increases have driven the rise in product prices. Nor did employers bear the increased costs of healthcare for their employees; more companies shunted the insurance rate increases onto the employees themselves. And they reduced or eliminated both fixed-pensions and 401K-matching.

In fact, one of the few factors driving employers to increase hiring and wages now is the back-firing of the “outsource to India” movement that has made the quality of American companies’ customer service and software a laughing stock. It’s only their customers’ fury that is forcing companies to in-source some service and product-production again. The companies are recruiting the very skillsets (often the same people) they laid off over the past five years. And those new-hires or re-hires are driving a harder bargain.

The “Achieve Balance” Law of Physics, Economics, and Educated Workers

I’ve seen enough situations in physical nature and human nature achieve balance as the pendulum swings, to know that it must be some kind of law. Companies are finding out what happens when you mistreat your best and brightest. We learn from th experience. We start being as smart for ourselves as we used to be for our employers — we’ve had to just to survive the last five years. And then paybacks really are hell. Remember when companies started calling their layoffs “rightsizing”? That’s exactly what I’d call the current leveling off of productivity and increase in wages. I’d also call it “too little too late” — but better than never. If white-collar workers were unionized, I’d swear it was an organized work-slowdown. But they’re not, so it’s just nature and the laws of economics taking its course.

This entry was posted on Sunday, November 5th, 2006 at 3:15 pm and is filed under blog. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.