Productivity increases: Due to hard work or better tools?

From Ambrose Evans-Pritchard:

Prof Stiglitz, a former chief economist for the World Bank and winner of the [Nobel] Prize in 2001, said real median pay for full-time male workers has fallen back to levels last seen 40 years ago, yet productivity has risen 100pc over the same period.

The workers have been excluded from all the gains, or as he puts it, we now live in an “inherited plutocracy” where the rich accumulate ever more in a perverse dynamic that will not necessarily self-correct.

This argument by Prof Stiglitz is simplistic. Productivity may have doubled over the last 4 decades, but this is primarily due to tools at the disposal of the worker today and not because people are working harder. Real annual investment per employee has also doubled over the last 40 years.

Gross Domestic Investment per Employee

A counter argument would be that workers today may be better trained/educated in order to operate all that expensive equipment. The truth probably lies somewhere in between.

Source: Nobel gurus fear globalisation is going horribly wrong (technical) – Telegraph Blogs

7 thoughts on “Productivity increases: Due to hard work or better tools?

  1. Peter says:

    The key is that real wages in the developed world are in decline and to maintain real purchasing power workers have borrowed, growth has been driven by ballooning credit.

    We are now at a point where household debt has pretty much maxed out. Given something like 70% of domestic demand is driven by consumers there can be no real growth unless real wages increase.

    Peter

    • ColinTwiggs says:

      Some good comments here.
      We have:

      • ageing populations, increasing the ratio of retirees to workers;
      • a maxed-out debt bubble that duped workers into thinking the prosperity would never end;
      • a growing world population;
      • increased international trade; and
      • rising automation which improves productivity per worker but reduces the number of jobs.

      In that scenario, rising real wages are most unlikely.

      • Jay T says:

        Colin, I see the biggest problem democratic anglosphere governments have is creating real wage rises…I have given it much thought and I’m not sure how they can pull it off…apart from money printing..ie..digital credits into employers funds ( a trust if you will ) which in turn must be used for wage growth..the problem with that is it will be self defeating as asset growth will continue to marginalize real wage growth…as stated earlier I believe we have hit peak employment…no doubt job sharing will become a reality, liked or not..with the real prospect of breakdown in the Eurozone, mass migrations of refugees…and a very real premise of global deflation…people will come to realise that having a job is a privilege not a right…all in all..I agree with your statement that rising real wages are most unlikely..which means interest rates will remain low for the foreseeable future. Regards,Jay.

      • Jay T says:

        The more you consider it deflation is the key..politicians do not want a bar of it…the reality of deflation is bad bets are wiped off the books…most go through 3 to 5 years of readjustment..and then the cycle can begin again..with real growth..not with phoney debt induced growth…and the politicians need to remove themselves from their alliance with the finance markets, which is also a growth cyclical top phenomena.

    • Jay T says:

      Peter, that is the conundrum…how can real wages rise in the present environment..I believe the Fed(US) thought (incorrectly) that the money creation would trickle down to inflation and wage rises..instead…banks hoarded the cash by buying US treasuries…main street got Jack…

  2. frankaquin0 says:

    I’m no economist, and I really can’t refute anything Jay T says. It all makes some kind of reasonable sense. But the long and the short of it is that it is the job of some of the smartest people in the world to make sure workers get paid as little as possible for doing as much as possible. Why is everyone so surprised when they succeed, particularly when we add a billion or so more workers to an ever-shrinking workspace every few decades? It can’t be a coincidence that the graph shows the divergence of productivity from wages occurs about the time computers took over. Again, why the surprise?

  3. Jay T says:

    Workers have been cajoled into a belief that they are a part of the great anglosphere socialist experiment,albeit at the caveat of increasing debt..add tech improvements and robotization and the picture is set to become increasingly worse…perhaps the answer is for socialist/nationalist governments to roll back entitlements,at the same time the workers need to self educate and spin off into smaller online / and / or community businesses…The premise that a socialist/nationalist government can provide a factory worker a pension is a myth,perpetrated by governments buying votes…the hardest hit in the future will be those that believe the government have their backs…we are entering a paradigm shift..I also believe we hit peak employment in 2000..the conundrum is..how can a society grow in the future with medical breakthroughs extending the lifeline of the average Joe..at the same time robotization is decreasing the jobs available…how can this be ??? All governments of the western world be they local,state or federal are essentiaLLY BROKE…their tax receipts are lower than their socialist programmes…in the short term taxes will increase…in the long term socialists promises will be depleted and be exhausted…the world is broke..because it has allowed a generation to belief debt grows prosperity and that their taxes will be well managed..they are wrong on both counts,they are complicit with their votes and self serving socialist/nationalist beliefs..both will come apparent for what they are..a fool’s paradise.Workers have a choice..wise up really fast..realise the grand experiment is debt creation and money printing which profits the few….realise the grand armwrestle between deflation/inflation and that it will have a undefined and yet unrealised affect on their future and pension funds.Tomorrow belongs to those that prepare for it.

    Jay T.

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