Friday, October 14, 2011

Compensation Lags Productivity - or Worse

I’ve reported on this phenomenon earlier once on the Old LaMarotte as well. Here is an update using a 2005 base point set to 100. What I am showing below is an index for both, Productivity for the Nonfarm Business Sector as a whole, measured in output per hour of work, and Real Compensation (thus inflation adjusted) for the same sector.

What this shows is that compensation only ever weakly follows advances in productivity—and in some years when productivity advances, compensation declines (2008 and 2011 2Q). In the current period, the gap between the two has been accelerating, as shown in the inset graphic. I’ve argued elsewhere that productivity is a double-edged sword. It can be increased, in effect, by farming out the production of unfinished or semi-finished components to others—or letting some of the labor be done by contractors in a service business. An example of that in the medical field is to have Indian contractors evaluate test results sent to them by electronic means. Making the case for this is not a simple process; therefore I refer the reader to a close look at how this comes about that I presented on the Old LaMarotte (link) some time ago..

This and some other recent presentations, alas, simply point to the fact that when you “go global” economically, you might well be “going postal” on the people who must live locally. Change must be massive, systemic, and—given the scale of economies—must be led by government.

I got the data shown here using this Bureau of Labor Statistics facility (link). Note, to see graphs better, click on them. To get back smoothly, press Esc.


  1. That's about as good as simple, straightforward graph to explain the "Occupy Wall Street" movement as I've seen yet. It's no wonder that a lot of hardworking people feel as if the system is broken.

  2. Yep. But who actively represents the lower three--and possibly four--quintiles of the population? The emphasis should shift from Rights to Justice, as in "justice for all."