by Charles
One word. Productivity. According to Reuters:
Non-farm business productivity rose a hefty 4.7% in the third quarter, fastest pace in two years and stronger than first reported, according to a government report Tuesday that could ease inflation worries.
This is on top of 3.2% and 2.1% increases in the first and second quarters, respectively. More surprising is that this is happening in an economy that added 1,840,000 jobs in 2005. Why is productivity growth important? From the same article:
Productivity is a key factor that determines whether living standards are improving. Productivity gains allow companies to pay workers more from their increased production without having to increase the price of products they sell, which would fuel inflation.
It keeps inflation down and raises wages, GDP and living standards. Brad DeLong has been observing this economic indicator for years (his March 2002 analysis is an example), and he has an interesting table that tracks productivity growth in four-year intervals, every first quarter of every presidential years since 1960 (via Arnold Kling).
| Year | % Change |
|---|---|
| 1960 | 12.0% |
| 1964 | 12.8% |
| 1968 | 12.2% |
| 1972 | 7.9% |
| 1976 | 9.1% |
| 1980 | 3.6% |
| 1984 | 6.2% |
| 1988 | 6.9% |
| 1992 | 8.1% |
| 1996 | 4.9% |
| 2000 | 9.5% |
| 2004 | 17.0% |
This is the story of structural change in our economy that is hardly getting told. Arnold Kling: "Productivity growth in any given Presidential term is affected much more by private sector trends and by policies of previous Administrations than it is by current policies. I think it will be years before we know how much, if any, the Bush Administration’s economic policies affected productivity. The most likely explanation for the faster productivity growth of recent years is the gradual diffusion and exploitation of computer technology."
The Fed also sees a strong causal connection between the development of information technology and productivity growth. Finally, after all these years, computers are actually making our lives more productive (although I can think of at least one exception).
While cautioning that, short-term, "wage growth sometimes diverges from productivity growth", Kling stated that productivity is "probably the single most important economic statistic". Yet it seldom gets top media billing . Over a year ago, Virginia Postrel laid out some reasons as to why this is so:
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The productivity story is boring.
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The productivity story isn’t political.
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The productivity story is too big.
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The productivity story is hard to report.
As an example, and taking economist James Hamilton a little bit to task, he wrote last August about the "under-reported good news about productivity", yet in his latest analysis, productivity growth was nowhere to be found in his basket of economic indicators and there were no subsequent posts addressing the subject. Important as this measure is, it wouldn’t kill economists and business writers if they gave it more attention.
Now if Bush can do his part and try to control the rate of spending growth.
“The Big and Still Under-reported Story” is, coincidentally, the one the Administration is pushing this week.
Funny, that. Just a crazy coincidence.
“Now if Bush can do his part and try to control the rate of spending growth.”
My name is G. W. Bush, and I have a bridge to sell you. For you, half price.
If you believe, based on his record, that G. W. Bush might, somehow, suddenly, tomorrow, start trying to do “his part and try to control the rate of spending growth,” why not also believe that tomorrow he’ll wake up with huge multi-colored feathers and call himself a peacock?
It’s precisely as plausible, and grounded in the record. One might as well look to Dennis Kucinich to declare that his administration’s goal will be to conquer Europe and Asia militarily.
The old military saying “hope isn’t a plan” broke into general usage in the past year or so, but it turns out that, also, fantasy isn’t policy.
It keeps inflation down and raises wages, GDP and living standards.
Except for the “raises wages” part.
Except for the “raises wages” part
Yes…that would seem the actual “big and underreported story”.
If anyone is interested, here are the original stats on productivity and compensation for the 3rd quarter, 2005.
Non-farm business (seasonally adjusted annual rates): productivity: up 4.7%. Real compensation: down 1.4%.
Unless productivity increases lead to increased business investment and employment the 99.99% of Americans who aren’t corporate executives could care less.
Tim: people also care if they: (a) own stock, since productivity gains lead to lower labor costs per unit manufactured, which generally lead to increased profits; or (b) buy stuff, since they also tend to lead to lower prices. This really is good: productivity growth is one of those things that compounds over time and makes everything better.
Unfortunately, we also have a glaring horrible budget deficit, which has the opposite effect.
but, it’ll trickle down and bathe us all in its salty golden warmth. then we’ll be happy.
Am I missing something, or does it look like we’re seeing nearly 5% inflation? I mean, if wages go up 3+% and real wages go down a percent and a half…
hilzoy writes: “people also care if they: (a) own stock, since productivity gains lead to lower labor costs per unit manufactured, which generally lead to increased profits”
Which doesn’t necessarily benefit stockholders, because relatively few companies these days pass the profits on to shareholders as dividends.
And even if their stocks pay dividends, at typical dividend rates, you need to own a whole lotta shares to get much income.
So, most people are counting on stocks prices, which don’t necessarily have anything to do with actual performance.
“; or (b) buy stuff, since they also tend to lead to lower prices. ”
Unless real wages are dropping, in which case it may be a wash.
Hilzoy, you’re right about a). Corporate profits are near record heights. Apparently although, it’s not showing up in dividends. In a discussion at Angry Bear a while back the economists were wondering where the money was going, since it wasn’t showing up as investment or dividends. They refused to believe it was all going to executive compensation, even with the 54% increase from last year.
The productivity increases may also not be completely due to technology. There’s some discussion about outsourcing as a cause.
I agree with the others: real wages interest me at least as much as productivity changes, and matter more to real-life experience.
If anything, I think that a lot of noise over increased productivity while real wages fall is likely to do several bad things to the country, encouraging (on the one hand) discouragement and self-condemnation among those who see themselves screwed and think it’s their fault and (on the other hand) envy and class struggle impulses among those who see themselves screwed and want to bring someone else down to pay for it.
The triumphalist attitude that productivity gains are as such good for the country only feeds this. Glorifying abstractions over the real experiences of most of the people around you is not going to make them love you, or trust you. All that they need now is a focus and a sense of alternatives. Since the Democratic Party chooses not to provide a coherent temperate alternative to Republican extremism in the pursuit of high-tech feudalism, the field is open for someone more extreme and probably more damaging to the body politic. (Expecting the Republican Party’s decent members to rebel in favor of old-school conservatism’s concerns for individuals and communities over commerce is obviously as futile as expecting them to rebel in favor of limited government and humility over totalizing wars on abstractions and torture.)
One thing that Brad (or Krugman) commented on a bit back was that the last recession had a different labor cycle than the ones before it (possibly they were referring to the last two; I can’t recall).
The normal pattern is that businesses don’t lay off people as much as short-term trends would indicate; there’s an assumption that those people will be needed soon, and re-hiring/training/re-experiencing people is expensive. However, in the last recession, businesses were, in general, much more willing to lay off people to match short-term needs. They seemed to figure that they didn’t have the margin to keep them, and that they wouldn’t be needed anytime soon.
Also, what were the yearly job creation figures for the Clinton administration? 1.8 million jobs in a year is not that much, IIRC. The figures I recall are that ~140-150K per month are needed to cope with the growing population.
And when we look back upon the first term of Bush, he became the first president since Hoover to end a term with fewer Americans employed than at the beginning of a term. With hundreds of billions of dollars of deficit spending to boost the economy, much unlike Hoover.
Slarti: Inflation at about 5% would match my informal observations of my own budget and working in publishing and seeing how customers handle their budgeting for entertainment purchases.
I’m in my usual state of confusion whenever productivity comes up. What’s the definition? Something like output over input, I think, but how are the two quantities measured?
If I had enough time and money to waste, I’d get a Ph.D. in economics just to earn the right to say “I don’t buy into any of this s***”, but the opportunity cost is too high.
Hilzoy: “Tim: people also care if they: (a) own stock, since productivity gains lead to lower labor costs per unit manufactured, which generally lead to increased profits; or (b) buy stuff, since they also tend to lead to lower prices. This really is good: productivity growth is one of those things that compounds over time and makes everything better.”
Only if people can get wage increases. What’s that figure going around? Something like there has been no increase in real wages for the median worker in the USA, since 1973, except for a few years during the late 1990’s?
And if somebody is laid off, and has trouble finding a job, their buying power drops like a rock, and their savings are gone, as well. Which, if they own any stocks (which many people don’t), they get to sell them during a recession, and get less money for them.
Productivity = GDP / hours worked. GDP = every economic transaction in the U.S. Of necessity there are a lot of fudge factors in both numbers (I think).
Thanks Tim. Economists have way too much physics envy, if anyone asks me. (Not that anyone has thought to do so.) I could see the concept of productivity making sense if you limit it to one particular industry–factory A produces 1000 widgets per year with 100 workers and factory B produces 2000 widgets per year with 100 workers, so people in B are twice as productive, but coming up with an average productivity by adding up the production of widget makers with gizmo manufacturers and graphic designers and so forth, all because it can be reduced to monetary terms–well, it seems a little weird to me. I’m not sure, but if people overseas decide they want more gizmos and the price goes up, does that increase the average productivity of the US worker if nothing else changes?
Tim: I was thinking it might also raise share prices.
Also (I hope needless to say): my second comment was about the question: why is increased productivity a good thing? and not about whether other things, notably including declining real compensation, are bad, or about whether the good news or the bad news is more important.
On the latter: I tend to think that real wages going down means that an awful lot of people are not benefitting nearly as much as one would hope from this recovery, that the recovery is unsteady (housing bubble, interest rates, etc.), and also that the deficits (government and trade) are bad enough to drown almost everything else out, in the long term.
This is a non-story because nothing that the government does affects productivity. Here’s my evidence:
I once decided to try measuring 35-year productivity growth. I used the CIA factbook to look up the per-capita GDP of the top 15 countries in 1970, and their current per-capita GDP.
Result: 30-year productivity growth for all countries was equal to three decimal places, with the exception of a few oddball countries. These are countries with radically different taxation levels, radically different levels of regulation, radically different economic policies. But they all had productivity growth that was exactly equal – to three decimal places.
There were a small number of exceptions, but they were self-explanatory. For example, West Germany had slightly lower productivity growth. But of course, they absorbed East Germany. You can imagine that would be a pretty big hit.
Lesson: nothing that the government does affects productivity. Productivity is driven by technology, and technology spreads globally.
Bigger lesson: Government can receive neither credit nor blame for productivity. Furthermore, government policy should not be designed to boost productivity, because it *cant* boost productivity. Productivity is a global effect.
Tim- Any notion how salaries figure in this calculation?
My own experience suggests that when productivity is an issue for a company trying to increase profits they lay off wage earners and expect the lowest rank of salaried management to take up the slack with the tacit promise of future compensation. What that translates to for the lower management is lots of hours which go uncounted.
How is this factored for when measuring production?
Let me correct that — I believe it is possible for a government to boost global productivity by encouraging investments in technology. And it should. But that’s a long-term effect, on the order of decades, and bears no relation to these silly per-country productivity statistics that always turn out to be statistical noise in the long run.
I’d love to see a bit more in the way of analysis about what all of this means, as opposed to attempts to use the good/bad news to reinforce various opinions of rightness of self and wrongness of opponents. One leads to understanding; the other doesn’t, particularly.
“Lesson: nothing that the government does affects productivity.”
This seems either counter-intuitive, or overly sweeping, to me, which doesn’t, of course, mean that it’s wrong.
And presumably every counter-example I might pop up with can be swept away as an “exception.” So there’d be no point in my asking if, say, the Khemer Rouge did, in fact, do nothing that affected productivity. Or Emperor Bokassa. Or the former SLORC of Myanmar. Or the Imperial Japanese government from November, 1941-1945. Or the “government” of Somalia in the Nineties. Or, well, I can keep going for hundreds of these examples.
But presumably, even if the answer is “no,” and said answers are for hundreds of different cases, these will all be “exceptions.”
“…productivity statistics that always turn out to be statistical noise in the long run.”
In the long enough run, it’s all noise, and we’re all dead. This doesn’t mean that it’s not useful to pick out specific periods to examine.
But I’m venturing here off the shores of my small island of knowledge of economics, and I shall hastily row back to the beach lest a wave of econometrics sweep me under. Besides, this is a good time to contemplate beaches.
Slatri, I tend to agree with you.
Putting one factor out there without connecting it to other factors doesn’t mean a lot.
What is the old saying about being able to lie with statistics?
Anyway, looking at productivity in a vacuum is meaningless, just as is looking at real income, hours per week worked, unemployment, job gains, housing starts, etc.
Unless there is some attempt to tie them together, none of them, in isolation, means much.
Hilzoy and Sebastian point out some of the theoretical positives about increased productivity, but they exist only in theory until placed in perspective with the other economic measures.
I am not an economist , although I can balance a checkbook with 2 calculators, three pencils and my toes, but I can recount some anecdotal stories related to this subject.
The company I work for, a large insurnace company, has laid several thousand people off in the past few years, They have not, however reduced their work output. Fewer hours worked, same production woudl result in increased productivity as many people have taken on the duties of those let go.
However, pay increases have generally been below cost of living increases, the employees are under greater stress, and mistakes in things such as claim processing, bill payments, etc, have increased.
Under these terms, is increased productivity a good thing? I’ll let others decide.
And presumably every counter-example I might pop up with can be swept away as an “exception.”
he did say “the top 15 countries”. not sure Myanmar counts.
It seems pretty self-evident to me that “higher productivity; lower wages” is a good thing for the senior management team (SMT) and investors; not good for non-senior management employees; and value-neutral to consumers (who might or might not see improved prices/services as a result).
I note also that the line between “shareholder” and “senior management” can be blurred, as large blocks of stock are now customary and essential parts of executive compensation. This is a conflict of interest waiting to happen – and often does, as the SMT makes decisions to “enhance shareholder value” in ways that don’t enhance the company’s prospects; i.e., by cutting R&D, selling off profitable assets for the cash, etc.
Was it a new law or a court decision in the 1980’s that allowed hostile takeovers of companies that didn’t wish to be acquired? That’s the tipping point that gave way too much power to stockholders at the expense of employees and, often, customers.
My own comments on productivity aren’t really aimed at Charles’s post–it’s a more general feeling of skepticism mixed with ignorance about what certain abstract economic concepts mean in real life. Unemployment statistics and wages are things that have obvious real-world meaning. Productivity–well, I don’t know and if Gary has room on that beach I’ll join him there.
Good Economic blogs on my blogroll:
Arnold Kling is not an idiot like Luskin, but is not real trustworthy
Big Picture …Barry Rithholz
Economists View …Mark Thoma
Calculated Risk …anon
Macroblog hardcore Fed-watcher
Cunning Realist …MBA executive in Financial Industry…more politics, some economics
and of course, the usual, Sawicky, DeLong, Angrybear, Setser…who I follow less because of his concentration on currency, and because I can make no sense of exchange rates.
Finally BOPNews with conventional analysis from Hale Stewart, and visionary oracular incomprehensible analysis from Newberry.
Ummm, what was the question? Is rising productivity a good thing? Sure, of course it is. Cheap HDTV’s for people w/o health care, no gas, and huge mortgages.
slarti – “I’d love to see a bit more in the way of analysis about what all of this means, as opposed to attempts to use the good/bad news to reinforce various opinions of rightness of self and wrongness of opponents. One leads to understanding; the other doesn’t, particularly.”
Lot’s of books, no Bible; mainly because of the variables. Labor, capital, natural resources, entrepreneurship, public policy – all snapshots touched on here. From this discussion I see we get bogged down on corporate greed vs. the downtrodden worker – examples of which abound but are probably on the very tip of the bell curve. In the theory of work, working harder rarely adds 10% to the equation; and that’s a one time event. Most productivity gains are process and technology. That is especially true in our industry. Although improved process often results in better work conditions and empowerment. So pick your poison, if good news is bad, and bad news is bad, fine. Just let go of our ears, we know what we’re doing.
Gary, just because I hope Bush will control spending does not mean I expect it to happen. He ain’t no Reagan, or even a Clinton for that matter.
Except for the “raises wages” part.
As I wrote, Amos, Kling acknowledged that short-term divergences are common. Also in the NYT: “For workers, however, the report shows that the rise in energy costs wiped away any advantage they received in the form of higher wages, at least for a time. Before adjusting for inflation [read $3.00 for a gallon of gas], hourly compensation rose 3.7 percent.” These things don’t track perfectly in tandem, and it’s not unlike the argument made in 2004 when GDP was growing strongly and job growth petering along. With oil prices now dropping back to June 2005 levels, we’ll see what real wages will look like going forward. Other factors affecting wages are the unemployment rate (which is approaching shortage levels) and whether more folks will enter the labor force, among others. A 3.7% increase in compensation in the 4th quarter in an environment of falling gas prices would be another story.
“Productivity–well, I don’t know and if Gary has room on that beach I’ll join him there.”
We’ve got pina coladas, and other drinks with little umbrellas in pineapples, even.
We’re trying to grow the island, via landfill, but given the ocean of economic knowledge I do not possess, I fear that my sporadic backstroke and breaststroke expeditions will make for slow-going in our growth.
But our knowledge productivity is high!
Wages remain stagnantly low. Studies are underway to clarify whether our island’s ban on trolling is connected.
Probably we need to hire a connected lobbyist to achieve our potential growth. We do have a plan to extend our metaphor via increased connectivity, and growth that builds on our foundation of bulls**t.
Cheap stock is now available! Invest now! Get in early on a membership in the miniature golf course!
With oil prices now dropping back to June 2005 levels,
Not gonna happen. Besides, watch natural gas (new record high, $15, woo-hoo).
“Gary, just because I hope Bush will control spending does not mean I expect it to happen. He ain’t no Reagan, or even a Clinton for that matter.”
Glad to see you say the latter. Still, shouldn’t hope have some basis in reality? (I’m setting aside discussion of Reagan’s contribution, or not, to controlling spending.)
I was trying to suggest that wishing for a pony might have higher odds of paying off. (Beside, Tom DeLay assured us that the federal budget has been shaved to the absolute bone; don’t you believe the conservative Republican leadership?; what are you, some kinda loser-defeatist?)
I’d like to hope that President Bush would somehow travel back in time, and not confound all the faint hopes I’d had that he’d confound my expectations for him, but I’m not expecting that to happen, either. Nor am I writing blog posts seriously mentioning my “hope.” However, it’s possible that this may be the one single difference between our POVs that will allow people to distinguish us.
(Note to some: that last was a, you know, attempted joke.)
Hopeisnotaplan, fantasyisnotreality. But there’s always something to be said for optimism, in this best of all possible worlds.
Another area that productivity gains affect is the long-term state of the Social Security trust fund. If you believe in the models used by the SSA and the CBO — and we don’t have anything better for the long-term — and if we have annual productivity growth of 2.1%, the trust fund never runs out. If productivity continues to average 4%, by 2025 or so the trust fund will be so big that we would be able to seriously consider substantial cuts in payroll taxes.
“..(although I can think of one exception)”
😉
I can think of many. For example, I’m taking time away from productive activity to respond to your post, which you took time away from productive activity to write, plus Slart has set back the SDI initiative by decades just being here trying to get us to comment productively, plus assorted attorneys are either billing or not billing to respond, plus Hilzoy and others haven’t graded those papers yet.
Now, everyone get back to work or I’m offshoring this whole operation to the Marianas, where people do twice the work on half the kidneys.
But seriously, or not seriously, I saw a teenaged girl today at the mall call her friend on the cellphone at the next table 11 feet away to discuss labor policy. It saved on walking.
Charles: “Gary, just because I hope Bush will control spending does not mean I expect it to happen. He ain’t no Reagan, or even a Clinton for that matter.”
Reagan!?!?!?!?!? Charles, please quit with the propaganda. Reagan was a spendthrift. And don’t bother bringing up Congress, because Congress was there before and after Reagan.
“As I wrote, Amos, Kling acknowledged that short-term divergences are common.”
As I’ve pointed out, ‘short-term’ means either “long after your’re dead” or, possibly “maybe if a Democratic President and Congress are elected”.
I’m not an economist, so take the following advisedly, but I can’t see how “productivity” is anything but a joke.
Say Tom’s House of Widgets makes 1000 widgets a year. Bob’s Widget Factory makes 2000 widgets a year but doesn’t sell any of them. Bob has more “procductivity” than Tom, but so what? It’s not going to help Bob when he goes bankrupt, not going to help his shareholders when their stock is worthless and not going to help his employees when they’re out of a job.
Moving away from pure manufacture of hard goods, it becomes even more tenuous. How do you measure “productivity” of a software company? Lines of code? Programs written? The truth is that in most cases, “productivity” is hours charged, nothing more.
Charles: “the unemployment rate (which is approaching shortage levels)…”
This isn’t clear at all. Unemployment is low, but so is employment, since a rather larger than normal group of working-age people seem to be out of the labor market. Whether this is because they have chosen to get out of it, because they have given up, or some combination of the two is unclear. The best evidence I’ve seen suggests that the labor market is still soft, which is why real compensation is dropping, not rising as you’d expect if there was a shortage of it.
Michael Cain beat me to it.
But it is worth repeating that all the doomsaying about Social Security we heard a few months ago was based on projections that assumed a much lower rate of productivity growth than this.
Now, productivity is not going to continue to grow at 4.7%, but The Trustees’ most optimistic scenario assumes a 1.9% growth rate. The projection most often cited by the doomsayers assumed only 1.6%.
“Productivity gains allow companies to pay workers more from their increased production without having to increase the price of products they sell, which would fuel inflation.”
Problem is, workers aren’t getting anyof this yet.
Reading any news story (or blog posting) about productivity is almost always an exercise in frustration.
Charles does not define what is actually being “measured” here and this is not surprising. The Reuters article he links to mentions business productivity and then just productivity without defining what they are talking about. The DeLong paper linked to next brings up both labour productivity and total factor productivity (Warning! Huge and esoteric economic controvesy!)in the abstract.
The problem here isn’t the basic concept or definition of productivity in the economic context, it is simply output per unit input as pointed out by Donald Johnson above. This is total factor productivity and it is intuitively obvious. The problem of course, is finding ways to both measure all the inputs (land, (including, perhaps, ecosystem services?)labour, and economic capital (don’t forget to include infrastructure along with plant and equipment and inventories etc.) for any particular good or service, and then to aggregate all of them in any meaningful way.
Whether it is meaningful at all has been a point of strong contention among economists since at least the 1960s.
Straight up labour productivity is a lot easier to measure but has its own problems.
The claim that productivity causes higher wages is unsourced. Intuitively, you would expect it to have the opposite effect: increased productivity can lead to lower demand for labor, which leads to a lowering of the price of that labor (decreased wages).
Naturally, of course, one would expect increased productivity to result in a decrease in the price of material goods — so to a great extent, increased productivity is a wash (you earn less, but you spend less also). Keep in mind, though, that not everything is a material good, and increased productivity does not necessarily mean a decrease in the price of everything an American spends their money on, like mortgages and health care and energy.
So, the “big unreported story” is that some people in suits measured a number, and because that number is different than the number they measured before, it could potentially impact your life in both beneficial and detrimental ways which you couldn’t possibly understand without a solid grounding in a subject that even experts can’t totally agree about, but in the end your life is probably not going to change too much, unless you’re already fantastically wealthy, in which case MAYBE then you’d care.
Granted, which stories are “underreported” is a matter of some subjective opinion, but I can’t see how anyone can compare this to that other big unreported story, which is that within the next ten years, either your taxes are going to skyrocket, big-ticket government programs like SS, Medicare, and military spending will need to be gutted, or the dollar will undergo South America-style devaluation in order to keep the trade and public deficits manageable.
“Naturally, of course, one would expect increased productivity to result in a decrease in the price of material goods — so to a great extent, increased productivity is a wash (you earn less, but you spend less also).”
Unless you sell more. Or less cost, same price = more profit. And we should compete more for mortgages, health care and energy; if we could keep government out of the equation.
As for the rest of the Captain’s obvious premonitions, all great empires can fall. There is nothing guaranteed here. So which path do we follow? You say.
Ah, good old trickle down economics.
A very reasonable premise, to the extent that GDP measures the actual creation of wealth rather than the mere shuffling around of capital. But AFAICT using GDP to measure “productivity” is like counting orgasms in order to measure population growth.
How much have Rita and Katrina contributed to GDP already? Quite a lot I would imagine, and the rebuilding has barely started. What about the invasion of Iraq? If I understand correctly having the government pay premium prices for shoddy goods that eventually get blown up is about as good as it gets from a GDP perspective. Not to mention the decline in wages that you get by putting less experienced people into the Nat’l Guard folks’ old jobs. That’s a perfectly legitimate gain in productivity…
I gotta agree with Captain Obvious. The real story is that one way or another, the US economy is about to be totally transformed, whether we like it or not.
radish: Rita and Katrina may have contributed to GDP, but I wouldn’t have thought they had added to productivity growth. If anything, the contrary, insofar as stuff was destroyed, and people either make do with worse machines or take time to get up to speed on new equipment.
oh — I agree with you and Captain Obvious about the deficit; I was just questioning this specific point.
Also, if anyone wants to get either (a) wonky or (b) gloomy about compensation, here’s a post from Angry Bear explaining the different measures of compensation. Short version: the one that just fell 1.4% seems to have been running higher than the rest recently.
…don’t you believe the conservative Republican leadership?; what are you, some kinda loser-defeatist?
Then I guess I’m a loser-defeatist because I think Delay was full of sh*t when he said that. Of course, I haven’t been in his corner for quite a while.
Unemployment is low, but so is employment, since a rather larger than normal group of working-age people seem to be out of the labor market.
I haven’t checked the percentage-of-working-age-adults-in-the-labor-force numbers recently, Hil (and I wish I had them more readily available, i.e., I’m too lazy to search for them), but I recall that they were pretty close to historical norms. The percentages spiked for a year or two prior to the dot.com bust of 2000, but the ones today are similar to where we have been historically.
Charles: I have an extensive, and I mean extensive collection of bookmarks, whence I bring you non-farm labor stats. They show that as of 2004, employment in non-farm jobs had not yet grown back to where it was in 2000.
Though, further down, the chart shows that we have passed the 2000 level now. However, if you look at the eighties and nineties, we seem normally to add about three million new (non-farm, goods producing) jobs a year, give or take, except for the periods 1990-93 and 2000-04.
So suppose that represents the normal growth in jobs of an economy chugging along with a growing population. In that case, this is the first year of remotely normal job growth since Bush took office; and since the population of working-age people presumably didn’t stop growing when he took office, you’d expect there to be a lot of slack (the people who would be holding the 11 million new jobs that, by my incredibly rough calculations, we would have had had we not gone into recession.) (Rough calculation means, I added 3 million new jobs a year.)
I’m always confused as to precisely what figures are at issue, but perhaps this link might be helpful. Clicking on the dinosaur icon next to the entries in the latest numbers column gives you a 10 year historical graph that can be tweaked in different ways.
LJ: Cool! And Charles: you can find the numbers you want there. Labor force participation is still low. (I mean, not compared to e.g. the early 80s, when the entry of more women into the workforce was still ongoing, but compared to most of the 90s.)
There appears to be a distinct lack of hate around here, but if hating seems necessary, a thread has become available at HoCB.
I didn’t mean to imply that hurricanes necessarily contribute to productivity, only that their contribution to GDP makes “productivity” numbers inherently murky. I dunno how natural disasters usually effect productivity either. However, my understanding is that…
Suppose an oil rig gets blown down. Hypothetical GDP drops (infinitesimally of course) because there’s no more oil being pumped out of that rig. However, the impact on “productivity” depends on whether the folks who are now out of work were more or less “productive” than the median. If they were less productive then productivity actually goes up.
It isn’t really any different after rebuilding starts. Any gain or loss in national productivity depends on whether the people who rebuild the rig generate more revenue per hour than the people who previously worked on it. Regardless of where that revenue goes, what it does, or whether it’s less than what would have been generated by pumping over the same period of time. If the labor:revenue ratio for the rebuilding effort is lower than for the operation of the rig, then productivity goes up (even if GDP goes down, which it may or may not), and the idle rig workers don’t really effect the productivity number one way or another as long as they’re not getting paid (unemployment insurance doesn’t count). And in any event all that’s “produced” is something that already existed. No new infrastructure is created.
Do I have that right? If so, productivity doesn’t seem like a very good name for the number in question.
The US productivity number is, as all stats are, flawed and only useful if you know what those flaws are.
Here are some of them:
(1) It’s non-farm, business-sector productivity. It leaves out huge chunks of the economy. Think teachers and nurses and policemen. Can’t outsource or mechanize them. So don’t count them.
(2) It’s labor productivity. If you can cut down on workers only by using more expensive machinery, the extra cost of the machine is either subtracted from profits or incalculated in consumer prices. You should look at overall productivity instead.
(3) It’s a function of GDP, and there have been huge changes in GDP calculation in 1995-1996. One is that ICT spending was switched from being a cost to being an investment. This lifts GDP because that’s calculated by adding investments to consumption and net exports (corrected for inflation).
(4) Another change made to GDP calculations was in inflation correction. The US (but not the EU) switched to a method called hedonic regression. This gives lower numbers for inflation and higher ones for GDP growth. Nothing wrong with changing the method, but it strongly biases historical comparisons such as this one.
I have no idea how large these effects are, but I did read a research paper that estimated that three quarters of the gain in labor productivity since 1995 could be attributed to the switch in ICT accounting and hedonic regression. More on the subject here.
Still, 4.7% is a huge number.
The real story is that one way or another, the US economy is about to be totally transformed, whether we like it or not
you mean like “800,000 jobs out the door” ?
this report thinks it’s a possibility.
I’ve always been a little mystified as to how productivity is quantified for, say, accountants, but I can see that productivity for teachers might be even harder to come up with metrics for. Even tougher for police and firefighters.
So, I’m thinking that perhaps there are good reasons for not counting some kinds of occupations, when assessing productivity.
With oil prices now dropping back to June 2005 levels,
Not gonna happen.
Tim, Charles is right on this one, at least according to my experience. (Actual pump prices I’ve paid this year, mostly paid around my home in beautiful (and today very white) Ulster County, upstate NY — tourists always welcome. Rich people are doing well, middle class not so much. Come and spend!)
short-term divergences are common
You’re right on this, too, Charles, of course. I don’t usually give in to the little snark devil on my left shoulder, but I did this time because I think this is more than just noise in the data. As you point out, job growth was anemic in 2004, and my impression of labor force participation is in line with Hilzoy’s. Others have made my points about how traditional interpretions of selected data series might be too simplistic to capture what is really going on.
I seem to remember, years ago, the conventional economists’ wisdom on productivity was that it was very dificult to measure, for the various reasons outlined above. Of course, productivity wasn’t doing that well at the time, so they needed an excuse. Now, no excuse is needed, so you don’t hear that so much anymore, at least from economists, even (relative) liberals like DeLong.
Also years ago (60s?), people worried about how automation was going to take away jobs. Didn’t happen back then. That meme died long ago, but now it seems prescient. Productivity seems like such a good thing that it is hard to remember that it is really a double-edged sword. Maybe we should just call it output per hour, instead, to remove the emotional content from the name.
HoCB
This is one of Charles’ best, IMO. Of course, I think that because I am less leftist on economics than I am on politics and social issues. And, he’s a much better sport about this than I would be, faced with HoAN. HoCB makes me queasy.
Seems to me that the biggest reason is getting a better result.
It is certainly not done for the sake of simplicity. They don’t add up each sector, the BLS calculations start with overall GDP and then exclude government, non-profits etc.
Nah Amos, oil prices are already back above $60/bbl. Gasoline prices are down from the post-Katrina highs, true, due to three factors: the Europeans lent us some gasoline and crude after Katrina, the U.S. refineries were left in high gas mode after Katrina, and there was some demand destruction after gas went over $3.00. The first two have gone away, so rising oil prices are sure to bring gasoline up again, probably pretty shortly. Also the remaining offline refineries (about 30% of the GOM capacity) in the GOM won’t be up again until March. If oil hits $70/bbl again, that works out to >$3.00/gal gas.
You should visit The Oil Drum, they keep track of this pretty closely.
Here’s one for hilzoy, from Jerome Guillet.
GDP vs debt
The seems-to-me argument isn’t all that convincing, jasper. I’m not saying this to be nasty, just to note something that I’ve picked up by having it fail to work for me more than once.
But on to the measure. It seems that the BLS page says they take the GDP, exclude government contribution, and then exclude government labor. The assertion that this is cheating, somehow, is just bewildering, unless one supposes that no one else thought to read how they calculate it and that it’s therefore misleading. Or that perhaps one ought to factor in those whose jobs don’t produce anything, when calculating productivity.
And of course there’s nothing stopping YOU from calculating productivity just the way you please, is there? Or from writing to the BLS in protest of their egregious rigging of the statistics.
Charles: I have an extensive, and I mean extensive collection of bookmarks, whence I bring you non-farm labor stats.
Perhaps that’s another reason for me to bail on IE, Hil, but LJ’s link also shows a pretty good picture. It’s hard to know how long this current cycle will last, but we are four years out of a recession and percentage is 66.1%. Ten years ago November, we were also four years out of a recession and the percentage was 66.5%, trying to look at this in an apples-to-apples sort of way. Just looking at the November column only, the percentage peaked in 1997 and has steadily drifted down since then. I agree with you that any statistics prior to the 1990s may not be terribly meaningful.
Ah, but Charles, you won’t get the magical bookmark organizing capacities of Safari (my browser) unless you also bail on Windows. Which, of course, you should.
I don’t know what Windows is doing these days, but Safari makes it incredibly easy to organize folders within folders within folders of bookmarks, and to rename them while you’re adding them (avoiding making you go into some special window to rename “Hello! I am a New York Times Page! Get the New York Times, America’s A Number One Newspaper, Daily! h4nrldsofjfnekdls0fkfktgjriued8385uy4jksmsm,c” to “Condi in Europe”, or something.)
Well, Gary told him change to Firefox. Beats Safari too, IMHO.
“I don’t know what Windows is doing these days,”
Which makes criticism of it slightly silly. (I have a lot more on this, but that’s pretty much the point, so I’ll keep it there.)
Although if Charles is continuing to use IE, as apparently he is, well, gosh, on the one hand anyone could muster up a bunch of links to point out why only a moron would do that, and on the other hand, a better person would merely point out the reasons to not use IE.
But it does turn out that the reasons to not use IE are not a secret.
It’s all too dreadfully like supporting the President without knowledge, pretty much. (This also involves endless twits attacking the President/IE with only one clue, which makes them almost as clueless, given the need for double integer cluefulness.)
Folks using Internet Explorer in 2005 (hey, when?) are obviously loser-defeatists.
Gary: you’re right. A coherent and non-idiotic version of my thought was in my head, but alas did not make it onto the screen. Thus:
I do not know what Windows (browsers) are doing (about bookmark management) these days.
I do know several other things: that to judge by the experience of everyone I know, Windows is much less stable than OS X (between virii and its own crashes); that IE is lousy in other respects, etc.
OT – Charles, is there any way to appeal a redstate banning based on a demonstrable mis-understanding? I can give you links to the comments if you want.
“Folks using Internet Explorer in 2005 (hey, when?) are obviously loser-defeatists.”
Hey, I need some excuse to back-up often and semi-annually reformat and re-install. And I like living on the edge:
“A crash is threatening
My very life today
If I don’t get some spyware
System’s gonna freeze away.
Crash, children, it’s just a link away
It’s just a link away,link away.”
” Charles, is there any way to appeal a redstate banning based on a demonstrable mis-understanding? ”
Report to a GOP reeducation camp near you.
hilzoy: “I do not know what Windows (browsers) are doing (about bookmark management) these days.”
Nothing good. The same old bookmarks manager system, with a ridiculously small window to operate in. The only noticeable change to IE in the past few years is the pop-up blocker, which is better than Netscape or Firefox. It explicitly tells you that something was blocked, gives you the option of unblocking that action, and it on the menu, for fast changes.
Which is surprising, because Microsoft has a General Motors attitude towards most things, but it is still the only thing that I’ve noticed worth anything.
The text sizing still stinks horribly, generally not working.
The best thing about Firefox’s bookmarks is that they’re stored in a regular old file called “bookmarks.html”, allowing keyword search. If you put a shortcut to that file on your toolbar, you can just type Ctrl-F “non-farm” and the link will be right there in front of you without having to navigate your folders.
Opera has the folders in folders in folders, and a search in titels of bookmarks.
Also, when I bookmark a page I can immediately change the titel, description, nickname and put it in another (new) folder if I want to.
Since I’ve used only Opera the last few years I have no idea how that compares with other browsers.
“The only noticeable change to IE in the past few years is the pop-up blocker, which is better than Netscape or Firefox. It explicitly tells you that something was blocked, gives you the option of unblocking that action, and it on the menu, for fast changes.”
This is different than Firefox how? And IE doesn’t have Adblocker. Or tabs. Or extensions.
“Since I’ve used only Opera the last few years I have no idea how that compares with other browsers.”
Again, Firefox has done all this for years. (Although I’d hope everyone has updated to 1.5 by now; all future updates will be iterative [the whole build won’t have to be replaced, but merely edited slightly, as well].)
Gary, re my comments on IE’s pop-up blocker:
“This is different than Firefox how? And IE doesn’t have Adblocker. Or tabs. Or extensions. ”
I must have been in error then; I’ve not noticed the explicit notice in Firefox (I’ve only been using it for a month, now). The reason I’m aware of it is that I was using an application (remote file access to a Novell network) which work with pop-ups, and I couldn’t figure out why Netscape wasn’t working.
Now, pretty much every other feature of IE stinks to high heaven: lousy text sizing, no tabs, a hideous bookmarks manipulation, sharing bookmarks with Windows Explorer in a way that I frankly can’t understand.
In such an environment, the fact that MS has done something decent with IE is notable and surprising.
Charles, is there any way to appeal a redstate banning based on a demonstrable mis-understanding? I can give you links to the comments if you want.
I answered you briefly in the levee post, reddstaty. I’m a front-pager but I’m not in the inner circle. Having written several posts that have put me in the ideological minority there, I don’t think I have much pull. You might send an e-mail to Moe.
reddstaty: OT – Charles, is there any way to appeal a redstate banning based on a demonstrable mis-understanding? I can give you links to the comments if you want.
You don’t seem to get it. They did understand you. They just didn’t like what you were saying. You held Europe and the U.S. to similar standards of scrutiny, and that is verboten at RedState. Making well-reasoned points that reflect badly on the site, core members of the site’s community, or on the values the site holds dear, is a banning offense.
Noumenon: The best thing about Firefox’s bookmarks is that they’re stored in a regular old file called “bookmarks.html”, allowing keyword search. If you put a shortcut to that file on your toolbar, you can just type Ctrl-F “non-farm” and the link will be right there in front of you without having to navigate your folders.
Safari lets you search the bookmarks window, just as you would search a webpage. No folder navigation required.
The 17% increase from 2000 is not merely an outlier with the previous figures.
It is not credible. [Don’t you remember how ploddingly slow we were back in 2000?]
What happened in the last 4 years?
Either the way in which productivity is measured has changed or the New Information Age has just “gelled”, “turbo charged”, “synergized”…
In the New Age, houses are being constructed with 17% fewer hours (or with 17% more house). [Ok, that one is hard to digest, but the idea that we spent 17% less 4 years ago seems more credible.] In our consumption led economy (~3/4 of GDP), we are getting to be better spenders, not so much better house builders. The productivity number could suffer a surprising revision should housing stall.
An interesting discussion of real wages here. Whether this is a reasonable discussion, I’m hoping you accounting types can tell me.
Slarti — I think it’s basically reasonable, with this caveat: when (as Macroblog suggests) you add in benefits etc., you have to bear in mind that these are very, very unequally distributed — not just in the sense that wages are (Bill Gates earns a lot more than me on an hourly basis), but in the sense that lots of people just don’t get benefits at all.
Also, one reason benefits are going up is that the price of health care is going up; if it were possible to index health benefits alone not by overall inflation, but by health care inflation the figures there would probably be quite a bit lower. As it is, more spending on health insurance does not necessarily translate into more insurance than before, or the same amount of insurance for more people.
Kash has a good post on the different measures of income here (it’s referenced on the page you cite.)
I’d love to see real income broken down by income brackets. My sense is that the wealthy are doing well, while the middle and lower classes are losing ground.