The productivity dividend for dummies: Raising pay while working less
from David Rosnick
I am greatly pleased to see such interest in CEPR’s recent report on work hours and climate change. All evidence points to the idea that gradually reducing annual labor hours per worker will reduce the amount of climate change with which the world will have to cope. But this does not mean that ordinary workers will have to make a sacrifice. Rather, this is about how workers may choose to enjoy the fruits of increased productivity—if only they are given the chance to share fully in economic progress.
Throughout the 1950s, workers in the United States enjoyed fewer hours of labor than almost every country in Western Europe. On average, an employed American worked 1,909 hours in 1950. Only Sweden—at 1,871 hours—worked less. By contrast, Greeks averaged 2,712 hours that year; the Irish put in 2,753.
Today, workers in Greece are second only to Poland for the longest working hours in all Europe and labored 330 hours longer in 2012 than their American counterparts. However, productivities of these countries have climbed dramatically since 1950 as hours have fallen. In each hour of work in 2012, each American produced 3.2 times as much as in 1950. This allowed workers to build 2.9 times as much in each year— and do so in 200 fewer hours than in 1950. In this way, American workers labored a bit less and still prospered materially.
These same Americans might have enjoyed a little more time off and still produced far more than did workers in 1950. Over those same 62 years, the average French work-year fell by 684 hours and still workers produce 4.7 times as much in a year.
Of course, this broad prosperity of increased consumption and less labor is much less true for ordinary Americans. According to the Bureau of Labor Statistics, the real hourly wage for nonsupervisory and production workers rose only 6.5 percent between 1972 and 2012—less than 0.16 percent per year.
Even life expectancy gains have been unequal. The gap in life expectancy at age 65 between male workers in the top half of the distribution of lifetime incomes and those in the bottom half grew from 0.7 years to 5.3 years over the course of just three decades. The two-year increase in retirement age for Social Security more than erases the 1.3-year increase in life expectancy seen by these lower-wage workers.
Doubtless, it is ridiculous to ask workers who are not sharing fully in the prosperity offered by today’s economy to accept fewer hours and smaller paychecks. Rather, ordinary workers should see both fewer hours and larger paychecks. Suppose that in the year 2100, workers can produce 2.6 times as much as they could in 2010. Why not work only four days a week and produce “only” twice as much?
Of course, this would depend on workers sharing in the economic gains. That means restoring the economy to full employment. That means ensuring that high and rising health care prices do not overwhelm the economy. That means breaking government-enforced monopolies by reforming patent and copyright law. That means shifting our decades-long focus pressuring factory workers to make do with less to instead increase competition in high-paying fields of medicine, law, economics, management, and in the very-highly compensated financial industry.
When economic gains are shared broadly, there is no reason prosperity cannot include significant reductions in work hours as well as material improvements.
Very good. I generally like the input and the proceedings of the article. While I do not disagree with the final message, I would like to point out that there is fierce competition in some of those fields. For instance, in the financial industry, the “blue collar” type of workers, sales, credit officers, etc, do not have stellar salaries. Even small branch managers have median salaries. Nothing special. The legendary compensations come from the very few brokers on the NYSE floor, or special high risk high reward traders. Ordinary traders do not make too much. I believe there is competition to get to those few well rewarded places, many try and many fail. And also those who succeed, do not last long. Economics also is not a highly rewarding job. Nor management. Many statistics show that an MBA only gives you better chances to be called for an interview. Common managers do not have salaries above their peers given equal experience and responsibilities. Maybe a 10% on top of average of their experience class and only because tighter selection criteria.
Excellent!!! It is good to see other (and better qualified experts) clamoring for, and explaining the rationale, for the overall advantages of working less hours…
Keeping long working hours obviously suggests that technology does not work for people. And this has its reasons. Existence of the class-structured society is preventing this to happen. Underdeveloped social consciousness, motive for domination, ego, be better than others, monetary way of thinking all lead to existence of class society. Leisure class would not be happy to enjoy the same quality of life as workers. Technological progress takes away power of domination from rent-seekers and capitalist class. They know it and preventing it, by suppressing technological progress.
We had Industrial Revolution, then we had IT Revolution. Social Revolution is knocking at our doors. We were trying to avoid it, but we should not. Let technological progress end the era of exploitation. We should worry much not about production but about distribution. Make not workers but whole social system more efficient. Society will benefit much not from physical labor but from intellectual abilities of people. Not productivity of workers, but “productivity” of non-productive class, bankers, lawyers, economists, should worry us much. Their contribution to overall productivity.
On the contrary, I would say that the increased productivity at about the same number of working hours shows indeed that the technology work for people. The labor work is now seriously enhanced by aid from robots and machines.
Define leisure class. If that is a Saudi prince that only hires CEOs and wait for the oil to jump from the ground, yes, you are right. That is a non-working, leisure kind of citizens.
If you refer to top level management and business persons, you are wrong. They work much more than a “worker”. 80 hours week is not uncommon. Many die young due to burnout for those several millions compensation package for a 4 year term as CEO.
Stop the nonsense about the exploitation. There is no such thing in the developed world. But yes, many of the things people in the developed world find cheap are made of child labor in the poor countries where exploitation exists indeed.
And finally, the dominance of the service jobs compared to manufacturing jobs shows that the technology works to make people work with the brain more.
«Exploitation» is merely the difference between the cost of (re)production the «working power» of «living labour» (a.k.a. «wages») and the saleable output of firms. Hence the Value Added Tax… Tax on the value added by workers (of all kinds and all along the hierarchies (yes, including part of the payment due to CEO… the rest is «rent» for the monopoly of their privilegede position – MIntzberg had it right when he suggested that there is – indeed – a new «executive class»). Without «exploitation» there would be no accumulation… And there has always been much more exploitation in the developped rich countries than in those poor countries… As Joan Robinson once said something like «worse than being exploited is not being exploited»… But then just ask any unemployed person…
Thank you for clarifying the term “exploitation”. Now I can link it to the Marxian economics. But I think the fundamental thing that makes “exploitation” a rare thing in the developed countries is this: the wage for the labor covers the necessary means of subsistence. That is key.
Let’s take Germany for which I have fresh stats in memory. There the average household income goes 40% for food, clothing, health care, education, bills. The rest goes to transportation and others. Nobody should call that SUBSISTENCE. In fact the worker sells its labor at a surcharge. An individual worker is able to accumulate during its active life. If we agree these terms, then we agree to stop moaning about exploitation in developed world. Yes, there is a small proportion of population in the developed world that earns below an arbitrarily established poverty line. They are the exception.
If people in the developed world would be exploited, then there would be no capital accumulation for individuals (non-supervisor jobs). Since this is false, then the assumption of exploitation must be false.
The problem, of course, is that we do not agree on these «terms»… By subsistence you seem to mean «survival with a modicum of life quality»… What «marxian political economy» means by «subsistence» is the reproduction (and «generational replacement») of the labor productive capability at least at the same level of «living conditions» as before any cycle of production… The fact that the extreme majority of workers in the world do not accumulate is becoming evident in the current crisis. But then, I also should clarify that I, for one, have never moaned about exploitation… Perhaps – and this is crucial – by exploitation you mean what marxians mean by superexploitation… That – crucial – misunderstanding can also be found in the existence of a Department (within the US administration) that tries to fight «labor exploitation»… When I was lecturing post graduate students from Africa (on the «Political Economy of Underdevelopment» I used to start my opening lecture with a provocative statement: «exploitation is a good thing, because without exploitation there is no production of an economic surplus, and without an economic surplus there is no capital accumulation, and without capital accumulation there are no factories to produce fridges, and TV’s and cars and…»…
The article ignores the source of per capita growth in mean real incomes. It is increased use of energy overwhelmingly sourced from GHG emitting fossil fuels. Sure, there have been improvements in efficiency and some relatively minor developments in renewable energy technologies. There is certainly urgent need for large decreases in income inequality. However whatever technology develops there are ecological fundamentals that demand reversal of the post 1950 growth phase of our species. Human economic activities far exceed the sustainable biocapacity of the planet. For widespread prosperity there must be reduction in population as well as fair shares in outputs.
Reduction of “inequality”, increase of “prosperity” by “reduction of population” obviously suggest mass extermination (genocide) of poor people. Not rich people, of course.
I got you point – you need better statistics on equality, income per capita and you have most efficient and very scientific solution for it. Good job!
Well, if one guy has 100 luxury cars, and 99 others are just poor, then you have bad statistics on equality and prosperity per capita. If you are going to improve your statistics, by taking away from one guy those 99 luxury cars and redistribute them among 99 poor people then this would be called socialism and this is what most would call as unfair and inhuman. Of course fairer would be just to kill other 99 people. Then you will definitely have much better equality and prosperity statistics. No questions if that one guy is the most efficient among 100 and he earned money for 99 luxury cars by working very hard, and he do needs those cars, while 99 others are lazy inefficient, waste of resources, GHG emitters, they stink, they are uneducated, etc. Right, just get rid of them. Our reality suggest that some people live to allocate scarce resources to meet the unlimited needs and desires of others. All people cannot have everything they want, only a few. All people cannot have what a few have and a few do not want others to live like they. Sound like most efficient resource allocation. This is what called “science” of economics. However, it also seems that most people exist to produce for a few and when they, as a factor of production, not treated as humans any longer, become inefficient the solution is just to reduce them.
But who is going to implement what you suggest? Or may be you mean that poor countries should commit mass suicide in order to improve your statistics?
Your solution is very neoclassical, however I still don’t understand one thing.
How is it possible to call fascism a crime, and neoclassical economics, which suggest us mass murder of poor inefficient people, whole countries and cultures, a science?
Socialist solutions are inhuman and tyrannic since they constrain individual freedom. However, neoclassical solutions, as reduction of population, considered now by many as “scientific”, most efficient, inevitable, non-alternative, human, natural, moral. What an unbelievable hypocrisy!
One politician said that “capitalism is the best system ever devised”. But best for whom?
Efficient “invisible hand” of the price system efficiently allocate resource to production of luxury goods, rather than to feed or educate poor. Poor don’t have any resources. They don’t have money. Their physical abilities are not need any longer, since we have enough machines now. We have enough our intellectual abilities, we don’t need intellectual abilities of poor. We don’t need to feed or educate them. We don’t need to make them as rich as we are. We just don’t need poor. Is that clear now?
Capitalism supposed to work efficiently to do this job. However “efficient” capitalism sometimes does not work efficiently enough. Not enough people dies from hunger. More people are born again. This is not efficient. We must help capitalism to be more efficient. We must save capitalism, even if reduction of population is required. Rich will be bailed-out and redundant labor force will be reduced. Not just fired, because unfortunately fired people are not dying, but survive. They should be physically killed. Our theory of general equilibrium says there is no unemployment under capitalism. People either prefer leisure or they are dead because they are useless. We need to find solution how that desperately surviving exhausted useless stuff, previously call used as labor, should be disposed so efficiently, that no one would call it as genocide. We are not criminals, we are scientists and we must persuade people that self-disposal is their duty.
Capitalism was never intended to serve all humans. It is not intended to serve humans at all. Neoclassical economics finally exhausted all solutions of the “invisible hand” of the price system. It takes off all masks and reveals its ugly inhuman face, by honestly proposing human extermination as the most efficient solution compared with “invisible hand”, which is not working anymore. Some people can not see that ugly face because it is still hidden under mathematically sophisticated extremely complex models, proving that human extermination is OUR inevitable choice.
What is happening to us? Are we sane? Can we still call ourselves humans?
Something is definitely wrong with this world. If within several months someone does not save this planet from ourselves, then we can definitely admit that no human society exist on this planet any longer.
I think you are exagerating in your «ecological pessimism»… The planet has plenty resources to sustain a healthy level or standard of living for – at least – about 9 billion human beingd, which is the number most demographers estimate will be when the population growth of our planet will stop… It may even decline a bit afterwwards. That being said, there is obviously a need for a more rationale use of finite resources of the planet. But that will never be achieved under capitalism…
I missed this one, which seems to have spawned the two threads on (specifically) US wages. A very significant blog from David Rosnik, greatly enlivened by the clashing perspectives of Cristi C and Fonseca-Statter, and by Sergio’s ironic response at #9 to a significant but ambivalent comment from Allen.
My own pennyworth is that even Allen doesn’t seem to appreciate the “ecological imperative” of growing more trees instead of cutting more down: both to cool down the surfaces they grow on and to mop up the pollution released by excessive burning of fossil fuels. Science reveals the need for that, even if eyes don’t.
As for population reduction, sure “statesmen” do all they are capable of doing, i.e. waging wars, organising the looting of the resources of other people; their herding into cities, factories, wage-slavery and now robotised redundancy. Living off the fat of other people’s lands while leaving those they have made destitute to do what they have made impossible, i.e. to look after themselves without the means of doing so.
Given the ecological imperative, this process needs reversing: leaving statesmen to look after themselves while teaching all our children not only “the birds and the bees” but about carbon and trees, brains and reproductive self-control, being grateful for what we’re getting and everyone’s responsibility for keeping it coming and not being greedy; about how money is used to account for that and how giving credit can enable redundant city dwellers to resettle our countrysides, replant forests in redundant lands and generally to make the deserts bloom. Kids? How many ADULTS today need to be re-educated!