Economics Questions

Re: Labor Productivity vs Compensation

Chris S — Sun, 30 Sep 2012 02:29:52 GMT

Wheylous:

I thought you were talking about the remaining discrepancy even after accounting for the "correct" deflators.

Oh i see. That is still a mystery, but I think the remaining discrepancy is small enough that somebody would have a hard time arguing it is a major issue. At least with this one, both are increasing at a comparable rate (at least they appear to be just eyeballing it. You're right that the best judge would be a graph comparing their slopes). What worried me was that compensation appeared to be stagnating even as productivity increased dramatically.

Re: Labor Productivity vs Compensation

Wheylous — Sun, 30 Sep 2012 01:20:26 GMT

I thought you were talking about the remaining discrepancy even after accounting for the "correct" deflators.

Re: Labor Productivity vs Compensation

Chris S — Sat, 29 Sep 2012 21:55:43 GMT

Wheylous:

It convinces me that any discrepancy between productivity and compensation are mostly a result of measurement problems

How do you know that?

http://www.nber.org/feldstein/WAGESandPRODUCTIVITY.meetings2008.pdf

Re: Labor Productivity vs Compensation

Wheylous — Fri, 28 Sep 2012 21:55:00 GMT

It convinces me that any discrepancy between productivity and compensation are mostly a result of measurement problems

How do you know that?

Re: Labor Productivity vs Compensation

Chris S — Fri, 28 Sep 2012 20:57:43 GMT

I tried to figure out a way to do that. I figured out that you can download the data into excel, but then I kind of gave up (I couldn't figure out an easy way to find the slope and then graph it, since it's not a smooth function). Anyway, I think I'm satisfied with the new graph. It convinces me that any discrepancy between productivity and compensation are mostly a result of measurement problems rather than actual problems.

Re: Labor Productivity vs Compensation

Wheylous — Fri, 28 Sep 2012 19:30:36 GMT

CPI calculation changed in the 80s. I did a quick Google search and got this:

The major changes often cited as distorting CPI were made in the early 1980s and mid-1990s. In the early 1980s, blah blah

http://www.marketminder.com/c/fisher-investments-a-primer-on-the-cpi/50d7d1e8-3c99-419b-8dcf-d6ec398b5349

There's certainly a better source, but it's a source for my claim.

Also, I'm still interested in seeing the graph of the ratio of the slopes over time.

Re: Labor Productivity vs Compensation

Chris S — Fri, 28 Sep 2012 18:52:10 GMT

Alright I think I figured out what the problem was. I found this blog post talking about the topic and in the comments, somebody claimed that while productivity is measured using the GDP deflator, real wages are measured using CPI. I graphed it and deflated consumption using the Implicit Price Deflator as they suggested and got this graph, which, if you compare to the one I posted earlier, has a reasonable level of divergence. I think it's interesting that they are basically the same until 1970, which makes me wonder if the way they measure CPI has changed significantly since then.

Re: Labor Productivity vs Compensation

Wheylous — Fri, 28 Sep 2012 14:21:16 GMT

Hey, Chris, can you make the graph for slope of productivity divided by slope of compensation? This way you can see in what years they rose in tandem. The resulting graph would have a value of 1 when they rose together, a value greater than 1 when compensation lagged behind productivity, and a value less than 1 when compensation rose faster than productivity. Then we could really see in what years the lag occurred. As is, we are seeing some cumulative change that very well might exaggerate the "issue".

Re: Labor Productivity vs Compensation

Prime — Fri, 28 Sep 2012 04:12:55 GMT

Wages are nothing more than the price of labor, and, like all prices, they are determined by supply and demand. If there is a shortage of workers in the X industry, then wages in that industry will rise to attract more labor. The wages rise even if there is no increase in productivity. Likewise, if there is a glut of labor in the X industry, then wages will stagnate or even decrease. Again, this is independent of productivity.

Do not let him establish that wages rose in the past because the employer wanted to ensure his employees could "buy the product." Wages rose because employers wanted to attract higher quality employees, and then retain those talented employees without competitors bidding them away.

If he really does think that employees should get paid enough to buy back their product, ask him how much a janitor at the Ferrari plant should make compared to the janitor at the Kia plant.

Re: Labor Productivity vs Compensation

Chris S — Fri, 28 Sep 2012 02:35:14 GMT

Minarchist:

I would ask why so many studies show poorer people worse off after 1970 than in the decades prior. The answer is simple, Nixon closed the gold window in August 1971 that put the world on a fiat currency standard the US dollar. The results were predictable that those connected to the banking system made serious cash as the newly created money starts with the banking system. Those farthest away: poor, minimum wage labor, etc who get the money last get hosed. But thank him for screwing the poor.

Bingo. All else being equal, increases in productivity cause price deflation and thus real wage increases. Inflation screws up that wonderful mechanism. Essentially, all the real wage growth that workers would have enjoyed since the early 70s because of increases in productivity has instead been redistributed to the State and its cronies via inflation.

This makes sense. Do you know of any studies or articles that back this up?

Re: Labor Productivity vs Compensation

Chris S — Fri, 28 Sep 2012 02:32:45 GMT

Here is the graph

Also to Prime. What I am saying is that the graph already accounts for total compensation. It is not just based on wages. I understand that there is a difference but this graph covers all compensation. Unless you know of something that is not counted in this data? I don't know how they calculate it.

And how do I argue against the not having enough money to buy things with claim? From a free market perspective, I guess I would just say that if it was beneficial to do, somebody would already do it, but I doubt he would buy that.

Re: Labor Productivity vs Compensation

Wheylous — Fri, 28 Sep 2012 01:55:23 GMT

Can you link the graph?

Re: Labor Productivity vs Compensation

Minarchist — Thu, 27 Sep 2012 23:04:22 GMT

I would ask why so many studies show poorer people worse off after 1970 than in the decades prior. The answer is simple, Nixon closed the gold window in August 1971 that put the world on a fiat currency standard the US dollar. The results were predictable that those connected to the banking system made serious cash as the newly created money starts with the banking system. Those farthest away: poor, minimum wage labor, etc who get the money last get hosed. But thank him for screwing the poor.

Bingo. All else being equal, increases in productivity cause price deflation and thus real wage increases. Inflation screws up that wonderful mechanism. Essentially, all the real wage growth that workers would have enjoyed since the early 70s because of increases in productivity has instead been redistributed to the State and its cronies via inflation.

Re: Labor Productivity vs Compensation

Prime — Thu, 27 Sep 2012 22:47:54 GMT

"The graph shown actually was total compensation, not just wages, so that is not the issue here."

That is the issue. From the employers point of view, the dollars he spends on paying your wages and the dollars he spends on purchasing your health care premium are the same. Just because they have different labels doesn't mean it costs the employer anything less.

As for your statement about " having enough money to buy back the product," don't let him get away with this statement. It is false.

Re: Labor Productivity vs Compensation

Chris S — Thu, 27 Sep 2012 22:38:15 GMT

Wheylous:

There was a discussion on this a while ago here that showed total compensation and not just wages and it had nicer correlation... hm... anyway, for now, have this Shostak article:

http://mises.org/daily/510

The graph shown actually was total compensation, not just wages, so that is not the issue here. I was able to re-create the graph using the st. louis federal reserve FRED website so I think his data is sound.

Shostak's article makes sense, but unless we changed the way we measured productivity after 1970, it doesn't really explain the divergence.