The Productivity-Wages Dilemma

This is a problem…

Cumulative change in hourly productivity, real average hourly compensation, and median compensation, 1973–2011*

Image

I’ve been stewing over this chart for the last couple of days, racking my brain as to how we can better ensure that workers’ wages reflect their actual output. I am not alone in this endeavor, as Lawrence Mishel, an economist, has an excellent blog post outlining his research on this phenomenon over the last twenty years.

As a sociologist, I am no stranger to the concept of alienation, popularized by Karl Marx (yes, that Karl Marx). I’m not a huge Marx fan, and generally think his solutions to problems of inequality lacked consideration of the human element. However, I think his summation of the problem of labor and wages still has merit; workers do not get paid for what they make, but instead for the time they spend working. Workers are alienated from their work because they do not directly benefit from what they produce.

I think Mishel’s work on the productivity-wage disconnect is a perfect expression of this problem. When workers are paid for “putting in their forty hours”, it is perfectly logical that, as technology makes work more efficient, those forty hours would be more profitable to employers. However, since the worker is compensated for time, rather than production, it is not surprising that increases in wages lag behind increases in productivity.

Policy-makers have attempted to fix this problem with varying degrees of wealth redistribution, minimum wage increases, and other solutions that do not address the fundamental problem of alienation; workers are paid for their time, not their labor. If we, as a society, are going to fix the gap between productivity and wages, we have to reconnect work to compensation.

How do we do this? I am a sociologist, not an economist, so I do not have a precise answer. I do have an idea for discussion. Instead of compensating time, can we not instead attach production directly to payment? This already happens in some fields. For example, freelance journalists are often paid a rate per story or per word. We could do something similar in other fields.

There are some obvious roadblocks to this. Establishing how much an individual worker’s efforts contribute to a company’s profits will take a lot of work (pun intended). Paying for hours at work is no better, though. I think most wage-workers inherently understand that what they do in an eight hour work day does not capture how much they have accomplished. Paying for productivity is a better deal for everyone. Lazy employees who drag out their tasks will receive less compensation than harder working peers, which will make it easier for employers to put their payroll to its most efficient use. For employees, working quickly and efficiently would be rewarded with more free time, helping people who work hard be able to spend more time with their families, work on personal projects, and invest in social relationships. I don’t have data for this, but those sound like things that increase overall well-being, which is something we definitely need.

Thoughts?

*Note: Data are for compensation of production/nonsupervisory workers in the private sector and productivity of the total economy.

Source: Economic Policy Institute. Analysis from Total Economy Productivity data from the Bureau of Labor Statistics Labor Productivity and Costs program, data from the Bureau of Economic Analysis National Income and Product Accounts, and Current Population Survey Outgoing Rotation Group microdata.

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5 Comments

October 22, 2012 · 6:27 pm

5 responses to “The Productivity-Wages Dilemma

  1. Wes

    You bring up some great ideas. The problem, as is the case in the more social of sciences, is the objective accuracy of testable data. It is difficult, though perhaps not impossible, to extract data that links directly from worker output to company prosperity. What are some ideas that you would propose for gathering this data? And how would it be weighted for different areas in the same company? For example, a salesperson at a retail store would get commission, showing an easy corollary between compensation and profitability. But what about the cashier or the one who restocks the shelves? The warehouse manager who coordinates shipments?

    Personally, i think the business world is too diverse to be standardized for such a project as this, but i am very intrigued with the idea and look forward to future posts

  2. Shooter McGavin

    A couple other fields that compensate based on results:
    Nearly all sales / account management jobs
    Automobile Mechanics (Shop charges book rate for the job, regardless of time to complete, compensates mechanics flat rate per job, mechanic and shop both profit more as work is completed more quickly)

  3. Wes, your critique is a fair one. There are certain jobs that are more “manning the ship” than anything else, so it may be harder to find something directly produced there. We could possible deal in such things as “number of customers checked out”, but stuff like that is largely out of the control of the worker. This is something I’ve been stuck on as well, but I’ll keep thinking on it. In the meantime, anyone who has a good idea on how to do this should feel free to chime in!

  4. “However, I think his summation of the problem of labor and wages still has merit; workers do not get paid for what they make, but instead for the time they spend working. Workers are alienated from their work because they do not directly benefit from what they produce.”

    I think that is definitely a reason for the drop in wage to productivity. I myself believe that I could support myself pretty well if I were brave enough to run my own business, however, the vast majority of my fears concerning that idea are based off of the massive local and federal restrictions, taxes, and complex codes that I would have to master just to avoid becoming a criminal.

    I would not be the least bit surprised if that sentiment is shared by a large number of independently capable Americans.

    • That’s a pretty good insight. There is a trade-off between security and being able to improve one’s position. That’s definitely something of enormous interest to sociologists.

      The fact that people are intimidated by the barriers to “being your own boss” suggests that the market system as it stands now is accessible only to those who have the resources and connections to take advantage of it. A sociologist would say that this is a problem of social capital (defined as access to social resources that can be utilized for personal benefit).

      There could be a number of ways to deal with this that we are not currently dealing with. My next post goes up tomorrow, and it deals with wealth inequality. I’m using a video that suggests that there are numerous ways to reduce inequality, and I think that discussion is relevant to the “access” problem you are alluding to.

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