Monday, September 3, 2007

The Mysterious Productivity Lead of the US Economy

First of all, I am enthusiastic about joining this distinguished group. Here is my initial post regarding the subject Sandwichman brought up -- the supposed elevated level of productivity in the US:

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?


Sandwichman said...

Hi, Michael. Great to have you here (or should I say "grate two half ewe hear"?).

Further complicating the productivity puzzle, things like high medical costs or litigation add to domestic product without contributing to general welfare. Canadians have three years longer life expectancy at birth than U.S.ians but the U.S. spends more per capita on health care. So who's more "productive"?

Michael Perelman said...

Ireland is the number 2 country. I suspect that what is going on there is part that Ireland earns big bucks by having intellectual property parked there & other tax dodges.

Anonymous said...

And don't forget all that Financial work that is not part of this GDP/hours worked.
I can keep a straight face most of the time, but not with 10-20M "illegal aliens" on the prowl, you know? (I need to see this piece written in Spanish with an English sub-text, you?)
And another thing, we are nervous about bein referred to as "distinguished"...calmo aims for "distinctive", you?

Anonymous said...

that's a nice anti jb clark tale
at the end of your post

forget the source of profits and rents
in any system of goods production
built by multi jobbled organizations subject to markets of the real every day type...

where and by whom
a product's utility
is actually added
and where that utility's exchange value
is appropriated
are two different places
and two different " peoples"


Anonymous said...


besides the miracle of un
productive productivity
which i'll bet we
plenty of

a nice little globbal
izing factoid

U.S. GOODS TRADE: Imports & Exports by Related Parties: 2006 The U.S. Census Bureau, U.S. Department of Commerce, announced today that in 2006, related party trade accounted for 40.9 percent ($1,182 billion) of total goods trade. “Related party trade” is trade by U.S. companies with their subsidiaries abroad as well as trade by U.S. subsidiaries of foreign companies with their parent companies. Related party trade accounted for 46.8 percent ($863 billion) of consumption imports and 30.8 percent ($319 billion) of total exports (Figure 1). These percentages are consistent with past U.S. figures. In 2006, U.S. related party trade increased by 11.6 percent ($123 billion) from the previous year while total trade increased by 12.3 percent ($317 billion) from 2005.

Anonymous said...

Absolutely, Nike would be the most productive country. Think about why the Chinese aren't selling those shoes for $100 a pair themselves? What magic must Nike possess that allows them to mark up their product so much about cost of production? That is productivity.

It's obvious in your example. One shipping clerk manages the import and export of 4 million pairs of shoes? One marketeer can sell 4 million pairs to foreign markets? One lawyer is so brilliant in writing his contracts that no one is capable of competing, of buying those same shoes from the Chinese and selling them for $99 a pair?

Yes, the four citizens of Nike would surely be the most productive humans to walk the earth.

Michael Perelman said...

Ireland is the second most productive nation. I suspect that its success has something to do with companies, such as Microsoft & Disney, parking their intellectual property there.

Anonymous said...

I believe the most extensive analysis of this issue (how offshoring may simultaneously raise measured U.S. productivity yet put downward pressure on U.S. wages) is by Susan Houseman, my colleague at the Upjohn Institute. Her working paper on this topic is at

Michael Mandel of Business Week wrote this up a few months ago in a cover story, at

Anonymous said...


i think this article points up the need for economists to define productivity a little more carefully.

physicists like to say in intro texts that they use the word "work" to mean something different than the common language.

but i have never seen any confusion over this. whereas using "productivity" to mean dollars of output per man hour (or per man) can be wildly misleading... if not to economists, then certainly to the lay audience, which seems to be who much "economics" writing is directed at.