Long hours may add up to flawed statistics
Economists suggest official U.S. productivity figures do not work out
BY MERRILL GOOZNER
Chicago Tribune
NEW YORK: Five years ago, Duncan Dickinson worked from 7 a.m. to 3:30 p.m. at his graphics design shop. Today, his Web page design business is booming and his income is 50 percent higher.
He starts work at 6 a.m., leaves at 5 p.m. and often does work for clients at night because his home office has the same computer setup as his office. They're even linked online.
''I used to have an end of the day,'' the 42-year-old designer said, ''but in the last several years, especially because of the Web, I am doing a lot of work at home.''
Has Dickinson's increased output boosted the nation's productivity, a key element of the ''virtuous cycle'' that Federal Reserve Board Chairman Alan Greenspan touts in explaining the economy's prosperity?
Perhaps. Some economists suggest official government statistics may be misrepresenting the productivity enhancement being derived from the nation's $200 billion-plus annual investment in information technology.
Millions of American office workers are working 9- and 10-hour days. As a result of new technology, millions more are working at home at night.
Cell phones, laptops, home computers, beepers -- the tool kit of the Information Age -- have extended the workweek of countless workers, anecdotal evidence and recent polling data suggest.
Yet most of these extra hours are not counted in the government's statistics. When the Bureau of Labor Statistics surveys companies, they put down 35- to 40-hour workweeks for their full-time workers, the standard for salaried employees.
Multiply all those uncounted hours by the millions of Information Age jobs that have been created or transformed over the last decade, and it may add up to a major flaw in how the government measures productivity, which some economists suggest has undermined our understanding of where the U.S. economy is headed.
Rise or fall
Productivity in its broadest measure is the output of the nation's companies divided by the number of hours worked. Only when productivity is showing major gains can corporations afford to give employees wage increases above the rate of inflation and still keep profits rising without raising prices.
The optimists in the profession, including Greenspan, say the computer revolution has ushered in a new era of prosperity based on rising productivity.
The pessimists say bunk. The computer has forced people to work longer hours and contributed little to the nation's productivity, which remains mired in a slump that began a quarter century ago.
Who is right in this debate will go a long way in determining the fate of the economic expansion, now in its eighth year. If the optimists are right, the economy can continue to grow indefinitely or at worst suffer only a mild bump in the road. Rising productivity allows corporations to increase wages without raising prices or eroding their profitability, which is vital to keeping the stock market buoyant.
If the pessimists are right, then productivity's failure to keep pace with rising wages will eventually erode corporate profitability, force corporations to raise prices and prompt the Federal Reserve Board to raise interest rates to fight inflation, a witches' brew of ill effects that eventually would plunge the nation into recession.
''Inflation continues to fall in the face of strong profits and rising wages. The only thing that can account for it is rising productivity,'' said Edward Yardeni, chief economist at Deutsche Bank Securities Inc. and a leading proponent of the theory that technology has created a ''new paradigm'' for the economy.
Leading pessimist Stephen Roach, the chief economist with Morgan Stanley Dean Witter, said those results have nothing to do with computer-driven productivity enhancements. He said the current prosperity was initiated by the corporate cost-cutting and downsizing earlier in the decade and has been fed by a boom in capital spending on not-so-profitable information technologies.
''Rushing to embrace the mantra of the new paradigm entails a real risk of overlooking the most basic and powerful benefit of an improvement in overall productivity -- an increase in the national standard of living,'' he wrote recently.
''On this count, the evidence is hardly circumstantial -- more than 15 years of virtual stagnation in aggregate real wages, an unprecedented widening in the inequalities of the income distribution and a dramatic shift in the work-leisure trade-off that is putting increasing stress on family and personal priorities.''
The stagnated wages of the last quarter century coincided with a historic reversal in the pace of the nation's productivity improvement. From 1973 to 1997, productivity increased on average just 1.1 percent a year. That's well below the 2.8 percent average the economy registered between 1947 and 1973.
In the last two years, productivity increased 1.6 percent and 1.1 percent, respectively. Last month, first-quarter productivity figures were revised upward to show an annual increase of 1.1 percent.
Recent years ''have been better than average, but it doesn't suggest we're on a substantially different growth path,'' said Edwin Dean, associate commissioner for productivity and technology with the Bureau of Labor Statistics.
In recent years, the bureau has looked at possible mismeasurements of productivity. It has focused on the numerator side of the equation: Has the nation systematically underestimated its overall output?
This is part of the debate over whether inflation has been overstated because of the changing nature of medical care, communications, computers and financial services. Redefining the inflation rate lower, aimed at lowering Social Security and other government payouts tied to the cost of living, would have the side benefit of raising national output and productivity.
Bureau ignoring hours
The government agency in charge of calculating the nation's productivity is ignoring possible mismeasurements on the denominator side of the equation: the number of hours worked. Government statistics used in the productivity calculation are based on the monthly Bureau of Labor Statistics survey of 390,000 nonfarm business establishments. The hourly workweek in that survey has fallen steadily -- to about 35 hours in 1997 from 39 hours in 1964.
The companion monthly survey of 50,000 households shows a workweek that has remained fairly constant over the last several decades, hovering around 40 hours a week.
Anecdotal and polling evidence suggest the government surveys may be missing the underlying trend. A Harris Poll taken periodically over the last quarter century shows the average workweek for most Americans has been steadily rising -- from 40.6 hours in 1973 to 50.8 hours in 1997. The hours devoted to leisure and hobbies showed a decline -- from 26.2 hours to 19.5 hours.
The changing nature of work may explain the increasing divergence between what employers say their workers are working and how people actually perceive their daily lives. Blue-collar hourly wage jobs, with the careful measurements that come from a time clock, are losing their central role in the economy. Most of the well-paying Information Age jobs created in the last decade are salaried.
''Especially in the service sector, many people who are reported working 40 hours a week are actually working 60 hours a week,'' said Paul Kasriel, chief U.S. economist at the Northern Trust Co. ''I know I do.''
Roach said an accurate measurement of actual hours worked in the economy would more than offset any upward revision in output that came from redefining inflation.
There are short-term benefits for the economy from unpaid and unreported work. Output rises without raising labor costs, which can mean larger pay increases down the road.
There is a flaw in such a strategy for maintaining long-term growth. People have only so many hours a week to give to work.
Four years ago, Massachusetts Institute of Technology economist Paul Krugman raised hackles in the profession by suggesting the miraculous growth of Asian economies had flowed largely from increased labor from better educated peasants who had migrated to East Asian cities. He predicted it couldn't go on indefinitely.
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