Thursday, August 07, 2003

The big economic news for today seems to be the productivity numbers for the US in 2003:II.
America's business productivity soared in the second quarter of 2003 and new claims for unemployment benefits dropped to a six-month low last week, a double dose of good news as the economy tries to get back to full throttle.

Productivity � the amount that an employee produces per hour of work � grew at an annual rate of 5.7 percent in the April to June quarter, the best showing since the third quarter of 2002, the Labor Department reported Thursday. That marked an improvement from the 2.1 percent growth rate in productivity posted in the first three months of this year.
In the long run, of course, rising productivity is good. Ideally it would allow people to work less and have more in qualitative terms, but usually it just means people work more and have more cheap plastic crap around the house.

But of course in the long run, as Keynes observed, we're all dead. We live in the short term, especially the working class, and for them, rocketing productivity numbers aren't necessarily good news at all.

In the 1930s and 1940s labor in the US gave up trying to control the production process. Before this time unions like the AFL tried to maintain the craft standards of their trades and unions like the CIO tried to control the shop floor and the pace of the assembly line so as to generate a working environment fit for humans rather than mules. But by the late 1940s, unions in the US gave up their dreams of self-government in the workplace and agreed instead to whatever the boss demanded -- if workers got a cut of the productivity gains.

Today's report out of the BLS tells us even that bargain is being strongly breached.

According to the BLS, productivity rose 5.7% in 2003:II. Per the same report, real compensation per hour rose just 2.9%. So workers in the US are being compensated at just half the rate at which their labor productivity rises. Before the late 1970s, these two numbers always rose in a roughly 1:1 ratio.

This news is even worse when applied to the deflation front. Back in the 1950s and 1960s, big productivity gains produced low but constant inflation because there were Americans with money to buy all the goods and services they were producing (not to mention foreigners, since the the US ran a trade surplus then). In the 1990s, however, high productivity combined with low or stagnant real wage growth meant disinflation. In today's enonomy, disinflation can easily turn to deflation.

Much of this productivity gain is coming from work speed-up. In 2003:II, output rose 3.4% while hours fell 2.2%. Unit labor costs also fell 2.1%. No wonder profits are up!

In the face of rising output, falling hours, net job destruction, tepid real wage growth compared to productivity, a towering trade deficit and a steady if not slightly rising dollar, all the pieces seem to be falling into place for home-grown deflation.

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