1 What has been the pattern of productivity of U.S. workers over time and how does this compare with their major international competitors and what factors have contributed to gains? EVT 7066, Unit#3: The Economy and Labor Market Presentation Larry Rosen 10/20/08

2 Definition and Patterns of Productivity in the U.S. Productivity = the amount of output given a unit of labor input. Can also be defined as GDP per hour worked. After two decades of steady growth, productivity came to a standstill in the early ’70’s In the mid-1990’s, productivity growth in the U.S. showed signs of resurgence. Those manufacturing sectors that invested most in information technology in the late ’80’s and early ’90’s, enjoyed productivity gains in the late 1990’s. A positive relationship between information technology investment and productivity growth was established.

3 Labor Productivity Growth Non-farm business, Annual % Rates of Change

4 GDP per hour worked in 2005, U.S. and selected countries

5 GDP per hour worked in 2005, U.S and selected countries France = $49.00 U.S. = $48.30 Germany = $44.00 Eurozone = $41.90 U.K. = $40.10 Australia = $40.10 Canada = $38.50 Italy = $38.10 Spain = $36.90 Japan = $34.40 S. Korea = $19.70

6 GDP per hour worked in 2005, U.S. and selected countries Among Organization for Cooperation and Development (OECD) member countries, the $48.30 per hour ranked near the top in terms of GDP per hour worked. Among large major economies, only France posted higher productivity levels at $49.00 per hour in Workers in a handful of smaller European countries – Luxembourg ($64.70), Norway ($63.50), Belgium ($52.90), Ireland ($50.50), and the Netherlands ($50.10) produced more per hour than the U.S. Output per labor hour in the U.S. was 20% higher than in Australia, 25 % higher than in Canada, and 40% higher than Japan. Among Eurozone countries, GDP per hour averaged $ Productivity levels did vary from $36.90 in Spain to $49.00 in France.

7 Annualized growth (%) in GDP per hour worked, 2000 to 2005 U.S and selected other OCED countries

8 Comparing Work Effort for the U.S., Eurozone countries, and S. Korea In addition to greater efficiency or productivity, the U.S. is a leader in work effort, which is hours on the job. On average, U.S. workers put in 1713 hours in For Eurozone countries, the average was 1594 hours. This was almost three weeks less of full-time work. However, the average worker in South Korea worked 2354 hours in 2005, over 45 hours per week.

9 Gap between workers’ real wages and productivity From the late 1940’s to the mid – 1970’s, the living standards of middle income families kept pace with productivity gains. Since that time, the relationship between productivity and family income growth has fallen by the wayside. Between 2000 – 2003, productivity expanded by 12% while median family income fell by 3%.

10 Gap between workers’ real wages and productivity (continued) Since the first quarter of 2001, real wages have grown at an annual rate of.7%, while productivity has expanded 4% per year. This represents a unprecedented gap between paychecks and productivity. The benefits of productivity growth have not gone into compensation for workers but instead have primarily gone towards company profits. In previous business cycles, profits have accounted for 23% of growth in corporate sector income, and total compensation accounted for 77%. The current business cycle has reversed this pattern. In this cycle, 70% of the growth has gone towards company profits, and 30% has gone towards worker compensation.

11 Real After – Tax Household Income Growth, Low 20% = 4.5% Middle 20% = 15.0% High 20% = 48.2% Top 1% = 111.3%

12 How have families fared during the 2000 – 2005 period? Productivity rose 4.5% in the 2000’s but income growth was negative, particularly affecting less advantaged families. Real median income for African – Americans families fell by 4.8%; for Hispanic families, it was 6.3%. The number of poor people grew by 17.1% (5.4 million). The number of people without health coverage grew by 15.1% (6million)

13 Different views on the benefits of productivity growth Some say that growth is beneficial for all. The quote that typifies this is: “ A rising tide lifts all boats” Others who question whether the benefits of growth are fairly and evenly distributed offer this sentiment: “A rising tide fails to lift those with leaky boats or those stranded on the shore.”

14 “When it comes to an economy that is working for working families, growth in and of itself is a necessary but not a sufficient condition. The growth has to reach the people: the bakers need to benefit from bread they create each day of their lives.”

15 Recommendations Policies should be designed that begin to close the gap between productivity, wages, and income. Efforts should be made to enhance the economic security of families and individuals. Access to higher education should be ensured for all those who qualify and want to attend college by requiring that they re-pay their financial support over time from their increased wages. Expand Trade Adjustment Assistance to workers in all sectors More attention needs to be paid to work / life balance issues. Provide more relief in terms of childcare, flexible schedules, leave, etc.

16 Recommendations (continued) Workers need to rewarded for their hard work not only with commensurate compensation but with reasonable amounts of paid time off /vacation time. The “European model” of increased mandated levels of vacation time should be considered and perhaps adapted to American use. Universal health coverage needs to be seriously considered. The U.S. spends more on health care than any other developed country but has more uninsured and less beneficial health outcomes and life expectancy. Efforts need to be made to address the issue of growing income inequality. Failure to address this issue tears at the fabric of our democracy, and bodes ill for the future. The gap is largest in the U.S. as compared to the other OECD countries.

17 References Allegretto, S., Bernstein, J., and Mishel, L., The State of Working America: 2006 / Economic Policy Institute Bernstein, J The 21 st Workplace: preparing for tomorrow’s employment trends today. Testimony, Committee on Health, Education, Labor and Pensions., U.S. Senate content.cfm/webfeatures_viewpoints_21 st _century_workplace_testimony Educational Testing Service, High School Reform and Work: Facing Labor Market Realities. Princeton, New Jersey: Educational Testing Service Grubb, W. and Lazerson, M The Education Gospel: The Economic Power of Schooling. Cambridge, MA: Harvard University Press The American Enterprise Institute and The U.S. Dept. of Labor. Productivity in the Twenty – First Century. October 23, Washington, D.C U.S. Department of Labor, America’s Dynamic Workforce. Washington, D.C. : U.S. Dept. of Labor U.S. Department of Labor, Sept., International Comparisons of Manufacturing Productivity and Unit Labor Cost Trends, Washington, D.C: Bureau of Labor Statistics U.S. Department of Labor. Productivity and Costs. Washington, D.C.: Bureau of Labor Statistics Wilson, G. and Cobet, A. Comparing 50 Years of Labor Productivity in U.S. and Foreign Manufacturing. Monthly Labor Review, June, 2002