Brad DeLong's Semi-Daily Journal (2004)

Question: does wage and salary income include benefits, and if not, could part of the story be that more compensation and benefits dollars are going to health insurance premiums rather than cash compensation?

No--it doesn't include benefits. But benefits don't change the picture (much) and these days flow overwhelmingly to the relatively rich among salary workers...

Re: Productivity:

If you have a department of 4, and lay off 2, there's a rise in productivity there, as those 2 people are ostensibly doing the work previously accomplished by all 4.

I really wish that liberals would stop characterizing Bush economic policy as a "failure."

Reality is that Bush economic policy has been a spectacular success. Virtually all of the income gains from productivity growth have been funnelled to the top 10%. Unemployment has risen, but that is desirable from a Republican perspective, because it dampens demands for wage increases.

Democrats and Republicans have different goals, and that leads directly to different policies and different results.

There was a time when ideology mattered, when significant numbers had not yet converted to Keynes's analysis, or when some fools may have actually bought Laffer's analysis. I know there are few marginalized academics, who still believe in Say's Law or want to bring back the gold standard, but, really, Bush economists and Fed economists are as mainstream as you can get.

Ideology, today, functions solely as a foundation for plausible deniability. When the Bush administration forecasts job growth, it is really just a smokescreen, intended to focus their critics are their "failures" at the margin. If the Bush administration actually came out and admitted what their targets were, and they were hitting those targets, which I think they mostly are, it would be a political disaster for them.

Bush economic policy is to redirect income from the bottom 90% to the top 10%. They don't say that that is their policy, because you cannot get elected with 10% of the vote, even if 10% is plenty to fill your campaign coffers. That they lie about everything all the time, is no reason why those, who oppose Bush and his minions, should accept them at their word.

Bush economic policy has been very successful to date. They were aiming to have fairly robust growth happening by the time of the election, just as they are planning to eliminate much of the middle class tax cut that fueled this recovery next year, just as they are planning to cut social service programs next year.

It would be better for liberals and Democrats and honest people to marvel at Bush's success than to bemoan his "failure" to achieve goals not his own.

The rising boats are located in China...

If a component of a manufactured good is sourced outside of the high-cost US, the final product will be cheaper (greater productivity?) but US employment will stagnate. Why is this surprising??

The rising boats are located in China...

If a component of a manufactured good is sourced outside of the high-cost US, the final product will be cheaper (greater productivity?) but US employment will stagnate. Why is this surprising??

"the productivity of America's workers has risen by 14.1%. But real GDP has risen by only 8.4%. And workers' real wages and salaries have risen by only 0.5%."

I thought the point of increasing productivity was not to shrink the wage gap, but to lower costs, and thus increase everyone's standard of living -- even if their income doesn't change.

A per-income bracket breakdown of those wage increases would be nice, but the data probably isn't available yet.

A per-income bracket breakdown of those wage increases would be nice, but the data probably isn't available yet.

“ ... loss of income on the part of the bulk of Americans--who are wage and salary workers, not coupon clippers.” Times are not so great for coupon clippers either, bonds are way down and coupon rates are depressed too. Nice pejorative phase “coupon clipper.” So if a UC worker (like Brad) would elect to take his retirement as a lump sum cash out, he becomes one of the dreaded “coupon clippers” ripe for plunder.

Brad,

what is "REAL" GDP and "REAL" productivity?

How much of this is through hedonic pricing? Do I do different things on my computer than I did with WordStar, Visicalc and DBase and Cello for the Web 10 years ago?

Why does anybody think they can believe these numbers?

I'm with Bernhard on this one.

Well Duh!

Jesus Christ Brad you're an economist.

The fact is the balance between labor and capital has been destroyed. Intentionally. This is the real underlying purpose behind right wing economics over the past 25 years. A nation of serfs and coupon clippers. That is the goal and we're almost there.

Brad-- I suggest you check your response about benefits in the wage & salary component.

Over the past year wages & salary are up 2.6%,
while benefits are up 7%.

Many people believe the cost of health insurance and fringe benefits is a significant reason employment has been weak this cycle and why firms use part time and temporary workers.
Making a committment to pay fringe benfits is a bigger committment than hiring someone.

Are these productivity numbers in terms of value added, or just gross output?

About 20 years ago I read an article by an American academic who proclaimed NEC to be many times more efficient in manufacturing than its American competititors, based on its revenues per employee. Had he bothered to read NEC's Yûka-Shôken-Hôkoku-Sho (Japanese counterpart of an SEC 10K) he would have seen that a _very_ large fraction of NEC's product costs consisted of payments to subcontractors -- most of the production people weren't in NEC's headcount. Whether the NEC direct employees who did the remaining work were any more efficient than the people doing the same work on the American side was unknowable.

Because US companies have greatly increased their offshore subcontracting of manufacturing and service work since 1995, might not a related form of distortion be at work here? If a company fires factory workers and buys the products or subassemblies they used to produce from China, retaining only its management, sales and distribution people, then the "productivity" of the surviving employees will appear much higher if the calculation is based simply on revenues, but won't change at all if based on value added. If the fired workers cannot find work in which they can make comparably productive use of their skills, then the true productivity of the US economy may actually have fallen.

If the costs of the offshored work are lower only due to the foreign country having devalued its currency by massive dollar purchases, lowering the apparent prices by indirect loans that we must eventually pay back, then any net benefit to the US may be illusory.

So, then, who are these people crowding the Circuit City and Target stores every Saturday if no one is making any money?

aw c'mon, Patrick, you know better than that.

It's not that no one is "making money." Hardly anyone is making "more" money.

And as a result, they (if they were homeowners) are out shopping because they either lowered their monthly mortgage payment or cashed out part of their home equity in a refinance or established a home equity line of credit (or all of the above) and if they are or aren't homeowners, they are incresing their credit-card debt.

Bernhard: Maybe your question about "real" is rhetorical, but it is supposed to mean "adjusted for inflation". I agree mostly with your point about computers; while we did have dramatic improvements in computer power and usability over those 10 years (storage capacity, speed, display resolution), most users probably use them as office devices to type & manage correspondence, with the added benefit of Windows' animated dogs and paperclips. So the hedonic adjustment probably overstates their value a lot. I also never got the point of this adjustment -- should the improvement not show up where computers are used, so that you don't have to "measure" it twice?

jm: In principle I agree, but at least in the US/China case the import of manufactured goods is subtracted from the domestic numbers, albeit as a much lower cost as you point out. On the other hand, manufacturing automation has progressed. I have some background in industrial automation, and even what we could do with early 90's technology was powerful stuff.

Patrick R. Sullivan: I don't see who claimed here that "no one is making any money". Maybe you posted to the wrong thread?

Here is a link to the BLS productivity statistics:
http://www.bls.gov/news.release/prod2.toc.htm

Read in particular the technical note. Two key quotes about production output:

"Output: Business sector output is an annual-weighted index constructed after excluding from gross domestic product(GDP) the following outputs: General government, nonprofit institutions, and private households (including owner-occupied housing). Corresponding exclusions also are made in labor inputs."

"Annual indexes for manufacturing and its durable and nondurable goods components are constructed by deflating current-dollar industry value of production data from the U.S. Bureau of the Census with deflators from the BEA. These deflators are based on data from the BLS producer price program and other sources."

So in short, it roughly comes down to tracking sales numbers, and trying to filter out price hikes/drops by correlating the numbers with PPI inflation. There is also some estimate of intra-sector sales that is removed, as you want to see only the actual end output.

This is very difficult to do accurately, but is it even meaningful? What you measure (as it is prbably the only thing that you can reliably measure and even define) is price, not utility.

Even so, this works great for manufactured goods, where you can count units and weights, and at least try to make adjustments based on the underlying goods.

In services, it becomes much more murky. How much productivity is the result of redefinition of service levels (customer service reps vs. computerized phone menus and leaving callers on wait for a long time, self-serve supermarket checkouts, or reducing checkout clerks with ensuing longer lines), wage/benefit dumping (outsourcing of janitorial jobs to firms employing illegals or paying minimum wage with no benefits, converting non-core functions to no-benefit contractors), and making more workers "exempt" from overtime pay, increasing their workload, and broadening job descriptions (laying off the office assistant(s) and telling people to do their own copying, stapling, and punching, while holding them to tighter deadlines; partially combining individual contributor and managerial job descriptions, for example asking engineers to manage projects -- but sometimes "in addition" to their "regular" work)?

I'm not saying that all of this is undesirable, especially some combining of job descriptions that has the potential of reducing unnecessary communication overhead or putting the job in the hands of those who best know how to do it (doing some job myself instead of explaining to somebody else what to do and then following up; having to track down several people over the day, etc.). But I see how this is often exploited by burdening people with more work than they can reasonably handle in a normal workday, and implicitly taking advantage of remote connectivity and "working from home" (during the evening and weekend).

Underlying the technical details is a human question: why is the United States not sharing its wealth with its poorer citizens? Why are we not aiming at a world where everyone is, at least, not desperately poor?

It's very odd, really. The human race is as wealthy as it ever has been. And yet the mainstream theories of political economy tell us that the best way of organizing our economy is for each of to pretend we are poor and for each of us to try to grab as much as we can. In other words, "greed is good." The same theories tell us that such economic solutions do not lead to optima of production or personal wealth, indeed lead to local maxima and global failures--that is why mercantilism is an exploded theory of trade policy, though one still much practiced. In other words, "greed is bad."

I'm not sure where this post came from. I'm exceptionally stressed at the moment, which may be why I'm setting out a central ethical problem of political economy (and when is the last time anyone can think of using those two words together in a sentence?) in this very limited forum. I do think, though, it's important that the issue be set out and addressed. We seem incapable of even talking about it coherently any more, of saying that no-one needs to be poor any more and that we might, if we choose, achieve such a world. Where did we lose the ability to think seriously about that question? What went wrong?

http://www.zmag.org/chomsky/year/year-c11-s03.html: "Paradox of '92: Weak Economy, Strong Profits."

Paradox of 2004: Strong Profits, what's Economy?

Spencer:

But how much of employment costs are due to fringe benefits? 25%? So (.07 x .25) + (.026 x .75) = .037. Employment costs increased then by 3.7% rather than 2.6%. Is that additional 1.1%, assuming the estimate is correct, enough to account for the relatively depressed level of employment?

On the other hand, doesn't an effort to drive down labor costs decrease the relative value of capital improvements, (both by cheapening labor substitution and decreasing aggregate demand)? And if the gains from productivy increases due to improve capital stock are not broadly distributed, but rather accrue to increased rates of profit, does that not tend to increase the valorization of extent capital stocks, including less improved varieties, ("asset inflation"), or increase the consolidation of their ownership?

Randolph Fritz: "why is the United States not sharing its wealth with its poorer citizens?"

I cannot answer the question decisively, but let me point out that universal welfare/healthcare (i.e. something close to unconditional and indefinite welfare support for people with income and wealth below a certain limit and healthcare entitlement) and extending the cuttoffs of unemployment benefits would cause the utter breakdown of this country's "service-oriented" economy. Who would be cleaning shoes, carrying suitcases, taking off the dishes in restaurants, or performing all the other services that earn only a pittance? (Well, even with universal welfare, non-citizens and non-greencard holders would probably not qualify.)

The whole economic building depends on cheap labor at the bottom. If your Burger place, retail store, cleaning service, etc. has to pay a wage that exceeds a reasonable welfare in order to attract workers (i.e., a "living wage"), it will drive up the price of burgers, retail items, cleaning services, and finally by a ripple effect everybody's nominal cost of living and everybody's cost of business.

Many businesses will become unprofitable as demand for more expensive services slopes down, eliminating jobs and increasing unemployment. The rising cost of living forces you to increase the retirement benefits of senior citizens, or supplement welfare. (You want to spare your senior citizens the "shame" of being on welfare, so you increase benefits, and consequently payroll taxes.) The resulting increase in social outlays calls for financing, resulting in the increase of all kinds of taxes -- how about 16% sales tax, 5-10%+ on all federal income tax brackets, $2+ more gasoline tax per gallon, a significant increase in healthcare premiums to support all non-payers entering the system, etc. In essence, the US economy and society would become more "European". I heard during the nineties that Sweden has exorbitant income tax rates exceeding 70% at the top, but much of it comes back in the form of various goodies.

Note that I'm not saying this would be undesirable; au contraire, it would almost surely lead to a more equitable society, but given that there are only so many resources and productivity to go around, it is illusory to think that the lifting of the bottom living standard would not take something from elsewhere -- many people at higher rungs would have to restrict their lifestyle quite a bit due to higher taxes and goods prices, most would have to mow their lawns and clean their houses by themselves, you would have to think again about this 40-mile commute, etc. Effectively the rising "lower class" would enter the "middle class" from below, so to speak, probably perceived by the middle class as sinking to the bottom.

The implications would be far greater than that, of course.

There is also a mindset component to this -- in Germany, for example, a few years back conservatives bemoaned the population's unwillingness to accept personal services like shoe-cleaning, suitcase-carrying, and the likes, and how this hinders the blossoming of the "service society" (literal translation of "Dienstleistungsgesellschaft", a term usually applied to the US, and the counterpart of the "service-oriented economy"). Others held against that that those would hardly be the jobs out of which social progress should be made, and in Germany class thinking had been largely discredited, perhaps as a consequence of two wars lost by the establishment, and the installation of a "social market economy", which appears to be eroding as one competitor, the "communist danger", has disappeared.

How many jobs have been lost due to cut backs by the states? Not only are numbers of state workers down in many states, but contract work such as construction has been cut back as well. We are underfunding our infrastructure and that is a drag on economic expansion.

I wonder, how much of the variation in the ratio of income to labor and income to capital over the least 15 years or so is attributable to variations on the capital labor ratio? We had demographgic pressures--women and minorities entering the workforce--and an investment boom and then bust. Meanwhile the share of capital income to national income rose a lot, and then fell, and then recovered. Also, there was considerable sectoral shift, especially towards technology and investment in technology, only to be unwound and then recover.

How much of this is really attributable to macro policy, or social policy, and how much is attributable to the technology revolution evolving in its uneven and unpredictable way? I'm not defending the Administration, just wondering if much of this saga has politicians standing on the sidelines and merely watching it all like spectators.

We still have a long way to go before the wage and salary side of our economy will be healthy again.

Brad,

The American economy will never be healthy again in your lifetime or the lifetime of most living Americans

What is the difference between wages and salary? Care to estimate the change in productivity over the past 40 years due to change in FLSA classes...

More people work unpaid hours than 40 years ago. They are "exempt" from overtime requirement of FLSA.

A recovery that has been jobless has also been "wageless." Not the first wageless recovery, but certainly the longest.

Beware the averages and what lurks beneath the law of too much aggregation.

Bona fide - In good faith

Ex gratia - As a favour

Bis vivit qui bene vivit - He lives twice who lives well

Welcome to the American Economic Holocaust, a process by which millions of middle class Americans will become impoverished or lower-middle class.

Basically, America's labor market has been allowed to merge with the impoverished labor market of the third world. It isn't radically different than allowing 2.5 billion impoverished Indians and Chinese to immigrate to the U.S.

The results should become more and more clear as foreign outsourcing and the use of H-1B and L-1 visaholders becomes increasingly prevalent.

What will be the end result? The transformation (murder) of America into another third world country teaming with a huge population of destitute people? An unprecedently violent revolution that would the lower classes mercilessly, joyously, and indiscriminately exterminating members of the upper classes? Whatever is going to happen, it will not be good for America. Of course, if the lower classes succeed in exterminating the upper classes, they might celebrate it for decades as a great victory of good over evil, in which case people might regard it as a good thing.

We're just witnessing the murder of the United States of America, that is all. We are in the process of an economic hol