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Max Fraad Wolff

Max Fraad Wolff

Posted: August 12, 2009 05:36 PM

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.


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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.

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