jeblair@facstaff.wisc.edu says... But doesn't all this just show the importance of productivity gains before wage gains? The Ford example was of a doubling of wages AFTER a 700% increase in productivity with the introduction of the assembly line. The relatively slower wage gains in the food service industry reflect the lack of a comparable increase in productivity. David Cross wrote: > >>Productivity is higher in manufacturing than in services. That's a > no-brainer. Mason Clark: >Huh? Why is that? If services were unionized and paid living wages, the >cost of their product would go up and you'd say the productivity was >increased. David Cross: > > Well, no, because productivity is output per worker. Manufacturing has higher > productivity because it's easy as cake to increase output per worker, just > introduce machinery and more efficient production methods. > > Services can't automate to that extent, so productivity is lower. > Hi, I said the same my self in my review of Peddling Prosperity (available on my web page ;-) QUOTE: Krugman seems to expect that productivity (and wages) should continue to increase at the post WWII rate, but he is also aware that the composition of the economy is changing. Just as the agriculture component has dropped during the history of the country, so the manufacturing sector has been falling, not just in the US, but in the industrial world. Figure 12 (p263) shows this. An example (p 278) illustrates that in the current economy, an increase in service productivity has more impact than a larger increase in manufacturing productivity, since services comprise about 80% of the total economy (and rising) while manufacturing is 20 % (and falling). But the potential for productivity gains is greater in manufacturing. I can imagine that the widget factory can make ever more (and better) widgets with ever fewer hours of effort per widget by the use of ever better tools, automation, robots etc. But think about services. It takes four musicians about 30 minutes to play a Haydn string quartet, now just as in 1790. The "productivity gains" have been through larger auditoriums to perform to a larger audience, and this has reached a limit if the nature of the concert experience is to be preserved. Recording and CD's can make the music available to more people but this is also a different experience. Can a barber use ever better tools to give ever faster haircuts? Can a councilor or psychologist learn to listen to patients faster? Or will the patients learn to talk faster? While there are productivity gains to be made in the service economy, I think they are reaching a limit. This means that the overall productivity gains of the economy (and the potential wage gains) should be EXPECTED to slow down as services play an ever larger role. UNQUOTE Since I wrote that I have relaized that there is considerable gain possible in service productivity: scanners in checkout, improved medical procedures that are both "faster" and better (as Grinch illustrated), etc. But I stand by the claim that industrial productivity gains will still outpace service productivity gains. And that wage growth would be expected to slow as a result. There seems to be some dispute about just how productivity should be measured (and even how it should be defined?), giving rise to this Thurow article about how it has changed: http://www.geocities.com/capitolhill/4834/data.htm I think it clear that to be meaningful it must measure "hours of human labor per unit of output", as for example in: http://www.geocities.com/capitolhill/4834/cpi4.txt (and see the full article in the URL reference, and of course "productrivity" is the inverse of this: the fewer hours imput, the greater the productivity) While this is relatively easy in comparing productivity changes in specific products or processes/services, it makes comparisons between different countries or industries a matter of assumptions and guessing. But clearly just raising wages and prices does not raise "productivity". (that would just raise unemployment or inflation if not offset by gains in "real" productivity). -- ,,,,,,, _______________ooo___(_O O_)___ooo_______________ (_) jim blair (jeblair@facstaff.wisc.edu) For a good time call http://www.geocities.com/capitolhill/4834 Subject: Wages or Productivity? Date: Sat, 16 Oct 1999 15:53:17 -0500 From: jim blair Organization: University of Wisconsin - Madison Newsgroups: sci.econ, alt.politics.economics Wages or Productivity? There has been an ongoing debate on sci.econ about the cause and effect direction of the observed correlation between wages and productivity: do higher wages CAUSE greater productivity, or is it the greater productivity that permits higher wages? To me the answer is obvious. But I came across this item which seems to me related: is the source of the electric power an energy plant somewhere, or the plug that you insert your cord into? >I worked with an Individual who plugged her power >strip back into itself and >for the life of her could not understand why her >system would not turn on. Someone who thinks higher wages is the cause of greater productivity is thinking like the individual in the above comment. -- ,,,,,,, _______________ooo___(_O O_)___ooo_______________ (_) jim blair (jeblair@facstaff.wisc.edu) For a good time call http://www.geocities.com/capitolhill/4834 From: masonc@ix.netcom.com Organization: MindSpring Enterprises Newsgroups: sci.econ, alt.politics.economics References: One Way Higher Wages Increase "Productivity" as Measured in Dollars per Labor Hour (for comparison across products). Suppose I assume that string quartets are admired only by a small coterie of wealthy widows. They will buy the same number of string quartet performances regardless of price of tickets over a wide range of price. If the performers are paid more per hour for their performance, the price of tickets must be higher. So their dollar sales will go up for the same amount of labor. Their productivity will go up, as measured in dollars for comparison with automobile assemblers or other manufacturing workers. We've agreed, I think, that a productivity comparison can only be made if there is a common measure, for which the dollar is well suited. If service workers were paid more, the cost of service would be higher. But I contend --and perhaps this is the key-- that the total sales of all service would be higher. The fact that some service is essential would be one reason for this inelasticity. One reason for lower productivity in service compared to manufacturing is the tradition of unionization in manufacturing and the current fact of the the newly growing service industry being non-union and low paid. Mason C hello, hello, does anyone understand this idea? I didn't say "agree" -- I just said "understand"? ( This thing's degenerating into a reading comprehension test.) From: oldnasty@mindspring.com (Grinch) Organization: Happy Skeptics of America Newsgroups: sci.econ, alt.politics.economics References: 1 , 2 On 17 Oct 1999 04:48:33 GMT, chasna1@aol.com (Chasna1) wrote: >How do you accurately measure productivity in the service sector? That's >certainly part of any problem concerning worker productivity. It's not like we >have good sound methods for doing so at present. This makes comparisons >difficult if not impossible. The productivity numbers even for manufacturing are bad. Stigler pointed this out decades ago when he looked at the productivity numbers for the steel industry and found they didn't account for the significantly differing qualities of different kinds of steel. And that's about as simple a productivity measuring task as there is in the real wold. The productivity numbers for services are so bad as to be unbelievable on their face. Greenspan himself says this in a speech on the Fed's web site, in which he points out that if you 'back out' the numbers for manufacturing from the total national productivity numbers, the result says that the rest of the economy has been getting *less* productive for decades -- which is impossible in light of the numbers for investment, wages, business earnings, employment, etc., as well as the booming growth of whole new industries and the 80% of the economy in general outside of manufacturing. (And no, guys, productivity is not determimed by measuring how much workers are paid. That's "compensation". Being highly compensated in no way adds to one's productivity. Productivity is measured, to the extent it is, by output versus factor inputs. Visit the BLS web site for details, rather than try to figure it out for yourself. Or read the chapter in the textbook. Ooops, I just remembered how violently some people react to *that* suggestion! Maybe I should just give the link to the BLS's Productivity FAQ: http://www.bls.gov/iprfaq.htm )