Doing More For Less

We are all sick of hearing about how we need to be doing more for less. We have all been doing more for less for a long while. What has changed? We are now doing more and more for less and less at a faster pace. The 11 August 2009 data releases from the Bureau of Labor Statistics (BLS) on productivity and employee compensation confirm what many had already suspected. This recession has hosted a speed up at work and decline in hours and wages. Real hourly compensation declined by 1.2% from May to July 2009.

There was a 6.4% increase in productivity in non-farm businesses in the US between May and July of 2009. Those of us still working are working harder. This occurred as output fell less slowly than employment. In other words, more people were laid-off than the reduction in output. Output decreased 1.8% and hours of work decreased 7.5%. There was a 1.9% increase in productivity between the second quarter of 2008 and the second quarter of 2009. This occurred across the year as output fell much less slowly than hours worked. Output fell 5.4% and hours worked fell by 7.1%. As a nation we are getting fewer hours and working harder during those hours. Adding insult to injury, real wages are falling. Wages are falling as our paychecks fail to keep up with productivity rates.

This alarming trend is best illustrated by a measure called unit labor costs. Unit labor costs measure changes in what we get paid adjusted for the amount of value our labor creates. Over time, unit labor costs measure our pay after subtracting out rising productivity. Over the last three months unit labor costs fell at a 5.8% annual rate. Now that is what anyone would call doing more for less. The graph below makes clear that Americans have been doing more and taking home less for the last 25 years. You don't need advanced training to detect a shift in the below graph, all data from the BLS. Look around 1984 for a dramatic change. The shift you see means American workers are taking home less of the increases in production furnished by their rising productivity.

As various voices scream about how we got into the present mess, today's data suggests an alternative partial explanation. American households slid further and further into debt as spending stayed on the upward pattern that defines the Post WW II US. Earnings did not stay on the same upward pattern. The graph, all BLS data, depicts the long lull in average weekly earnings growth. There are many reasons for this. One is that a declining portion of American productivity gains went to wages. This diverted a rising share to profits and into banks. No small portion of this was lent back to households to fill the growing gap between what was being earned and what was being spent. As you ponder this remember the 11 August 2009 news. These troubling trends have been accelerating as credit conditions tighten. If we are working fewer hours, getting lower wages and unable to borrow more, what comes next? I think this data seriously questions the strength and endurance of the present economic rally.

Comments

[itsmyparty]

You don't have to be an economist to know that the "real" economy is still getting worse.And the useless "paper"economy hasn't stooped looting the US.

[mbaty]

HuffPost's Pick

We are all seriously questioning the "recession is over" talk. As in, "seriously?" How can we consume disposable products with no disposable income? Perhaps it's time for a paradigm shift. It's time to get really smart about how we structure our society. We talk a lot about efficiency, productivity, and organization. Perhaps it's time we created energy efficient homes and communities so that our productivity can be used in an organized way so that we are all left better off. This might mean moving away from some of the profit incentives that have driven us this far and moving towards reliable simplicity. After all, many of us have had to simplify, to boil things down into what's really important and what really works. So America, what is it that is working about our country and what isn't? And what are realistic solutions that will work? No matter how grand the change, we voted for change because we knew it was inevitable anyway, and if we work together we can sail through the changes smoothly. If we do what we have been doing we will get the same results that we've been getting. Are you happy with the results we've been getting?

[DuganS1]

Future economic growth will be driven by investment, rather than consumer spending. Investment will create jobs that will result in increased wages later in the cycle. Investment must come in areas of the economy like energy, utilities, infrastructure, and the manufacture of materials that support those three.

[humblediplomat]

Growth will be driven by investment not by consumers??? Are you going to invest your money into creating something that someone is not going to buy?

You need to make your case a little better as it is currently too general to have any meaning.

[TheEconomist]

Interesting article. When the majority of the media decides to play make believe about the economy and how it might be coming out of a recession (depression actually), it's good to see a solid article questioning the situation with some factual data.
I too wonder what Americans are going to do now that they can't borrow anymore. It's very scary, and as an American I fear for our country's future.