The Mysterious Productivity Lead of the US Economy

The International Labour Organisation just released a report showing that labor in the United States is the most productive in the world. Four points are relevant here.

First, part of that productivity reflects the fact that workers in the United States spend more time on the job than workers elsewhere. Even so, the output per hour is still the second highest in the world — after Norway.

Second, conventional economics teaches us that wages reflect productivity, yet for more than three decades hourly wages (corrected for inflation) have shown a slight decline, while productivity has soared.

Third, a country can become more productive merely by shutting down some of its less productive operations. In that sense, increasing productivity can be nothing more than an indication of deindustrialization. I don’t think that is the case here, but the ongoing illumination of less productive businesses has been a factor. According to conventional theory, deindustrialization could mean rising wages for the same reason that productivity increases. By eliminating the low salaries, the average of the remaining salaries would be higher — except that the resulting increase in unemployment allows business to drive wages down.

Fourth, productivity can mean something very different from what people might think I was productivity. This statistic is nothing more than the gross domestic product divided by the amount of labor. Consider a fictitious country named Nike. It has a single product — shoes, which it can market throughout the world. This country has four workers: a lawyer to make contracts, a marketer to advertise the product, a shipping clerk, and an accountant. Rather than making shoes by themselves, they contract with a sweatshop in China which sells them shoes for $5 a pair. The country exports 4 million pairs of shoes year for $100 a pair.

A statistical agency would credit each of the four workers with producing a million shoes, representing a net increase in value of $95 each. Nike would certainly be the most productive country in the world. Or would it be?


2 comments so far

  1. known on

    Every American thinks his country should be proud of him and he acts accordingly.

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