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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: arun gera who wrote (14457)	11/1/2004 9:05:38 PM
From: GraceZ	Read Replies (2) \| Respond to of 116555

The way you are measuring productivity is a perfectly rational way to measure it (labor hours per unit of output) on a micro scale. If you are a manufacturer and looking to boost output what you want to do is use less labor to produce more goods. That said because the price of goods tends to fall as it becomes easier to produce them, economists incorporate output dollars (or whatever currency unit) when measuring productivity on a macro scale into the mix. So it is not enough to say make more widgets with fewer people in less time, but in order to raise productivity you also have to make more money per unit of labor. This is why long run real productivity is so much lower than you'd expect, about 2%. Obviously inflation becomes a factor here as well, it has to be backed out. If you are interested in what is wrong with the way productivity is measured I can point you to another post which contains an explanation from a friend, whom I agree with: siliconinvestor.com. The 15 auto workers who lose their job to automation (increases in productivity) leave behind a more productive worker. The way that US jobs became more productive, on average, aside from this automation was by shedding those jobs where the labor component couldn't be reduced or by moving to the business of creating second, third and forth order goods. The first order is something which will be used for direct consumption, the second order might be a machine to make goods for consumption, the third order might be those goods which create the machines that manufacture goods and so on. We've continually moved up the chain. A good that produces future income can have a value far above a good which is for direct consumption. In other words it is better to know how to fish and have a fishing rod than to have fish. that the people who lose jobs in one industry move to occupations that have good demand for their products/services but poor labor productivity, where labor is constraining the growth. This is the prescription for jobs to be sent overseas, but as you go on to demonstrate, that some of these jobs are in industries that are place specific, they can't be moved. These jobs would produce declining relative incomes and declining average incomes if high productivity jobs were only replaced with them. As you point out they tend to be taken by foreign workers, illegals. For the most part a job has to pay a wage that is sufficient for the worker to live in the location. The job may not warrant a salary that high because it doesn't produce enough revenue or market forces might be driving the wage down. What allows people to take these low wage jobs when they don't or can't be pay enough to live is that either the worker has found a living situation which is far below the average, (like in a large group living situation as in migrant workers), or is subsidized in some way. Like your teenager can get a job at McDonald's simply because you are subsidizing his living expense, a retired person living mostly on SS/Medicare can take that greeter job at Walmart because the government is subsidizing their income. A married person whose spouse brings home most of the income and their income isn't needed to pay living expenses might also be able to take a job with a wage too low to live in the area. There will always be a certain number of these types of jobs regardless of how productive we are on average. The problem is that we have far too many people who are only qualified for these low productivity jobs, so this drives down the wage even further. If I'm an employer I have little incentive to train that worker to be more productive (or give them tools to be more productive) if there is another waiting to take that job at the current wage. Meanwhile there are never enough to fill those specialty jobs which require a high level of skill or training and this drives up their incomes. If it becomes known that a particular profession is lucrative enough, this will make more people train for that job. Unfortunately this sometimes results in a supply glut which drives down wages unless the educational requirements and skill levels place a very high hurdle that only a few can jump over (like brain surgery). A person who is separated from their high productivity job by further increases in productivity has to retrain or face a declining real income. Individuals fail at this all the time even while the population on average gets more productive. Whether or not they are able to replace that lost job with a better one has a lot to do with their age and attitude, their flexibility or lack thereof. I've known numerous individuals who have re-invented their occupations several times, each time making more money. But the norm is for that person to slip into a lower wage job while some younger more flexible person takes the higher one.