Re: How does productivity turn into higher wages?

From: wilfred (wilfred_at_europe.com)
Date: 01/18/05 

Date: Tue, 18 Jan 2005 23:02:24 -0000

"The Trucker" <mikcob@verizon.net> wrote in message
news:csjnmg0asl@news1.newsguy.com...
> zerge@hotmail.com wrote:
>
> >
> > wilfred wrote:
> >> <zerge@hotmail.com> wrote in message
> >> news:1105994298.131535.139850@z14g2000cwz.googlegroups.com...
> >> >
> >> > r...@telus.net wrote:
> >> > > On 17 Jan 2005 08:21:29 -0800, zerge@hotmail.com wrote:
> >> > >
> >> > > >As productivity increases in an industry or in a country,
> > salaries
> >> > tend
> >> > > >to rise.
> >> > > >Can anyone explain the cause-and-effect that leads to this
> > dynamic?
> >> > And
> >> > > >I mean at the decision maker level: what happens in the minds of
> > the
> >> > > >employers and employees?
> >> > >
> >> > > It's just that the increased production has to go _somewhere_.
> >> > >
> >> > > -- Roy L
> >> >
> >> > Yes, I understand it at THAT level. Supply is demand etc.
> >> > I just don't understand the thought processes of the employers and
> >> > employees, see? What specific market pressure makes the employers
> >> > decide to pay more and/or employees ask for more?
> >>
> >> Increased production leads to higher profits, should wages remain
> > constant,
> >> but employees tend to notice that a larger share of the pie goes to
> > the top,
> >> and negotiate higher wages. Employers may be more willing to grant
> > wage
> >> increases as they are increasingly able to. I suppose in the very
> > long term
> >> wages should tend towards the marginal product of labour, but will
> > usually
> >> be prevented from reaching that level.
> >
> > Thank you. This is what I suspected, but wasn't sure. Do you know if
> > this has been confirmed empirically?
>
> This example is probably incorrect. Employees do not have much
> control at the required level. They simply cannot demand much
> of anything.

Maybe not explicitly, in the absence of unions or other means for
bargaining. They may however provide pressure on employers by leaving for
areas where wages have been raised. Reductions in the real wage are unlikely
to be accepted without complaint. Even at the lowest level, should one firm
pay higher wages....it will be able to attract the best workers, so other
firms may find it profitable to raise wages etc. At the bare minimum, you
must accept that the increased productivity, even if it is all swallowed up
in profits, must cause an increase in demand, causing firms to expand
production, requiring an increase in labour demand, so higher wages, yadda
yadda. I'm aware that the relation of wages to productivity is complex, but
generally, it is fair comment to assume that wages tend to catch up with
output.

> The increase in productivity will cause unemployment or it will
> cause increased production. If we suppose that the employer
> uses the increased production to cut the payroll then there are
> less people with money to buy the goods.

This is less likely than my example! If labour productivity increases, it
will probably be more profitable to expand production, unless there are
significant diseconomies of scale. In addition, any layoffs are unlikely to
have a depressive effect on demand unless all firms participate in reducing
labour employed, and prices/wages remain stuck, keynesian multipliers come
into play etc. Its unlikely this effect would dominate over the effect of
increased supply.

> So the demand for the
> goods will shrink below what it was before. This spiral does
> not stop and the more people fired the less goods demanded and the
> less produced. But if the employer (quasi monopolist) uses the
> increased productivity to increase production at a lower cost
> and price per unit then demand will increase (more people will buy
> the goods because they are less costly) and this will have increased
> _real_ wages. i.e. everyone gets more pie though they never saw
> a raise on their paycheck. The monopolist (employer) will get
> both. He may take a slight hit on the income due to reduced
> pricing, but he will be selling more units and his income will
> increase greatly. The employees need not get an actual "raise"
> in salary to get more _real_ income.
>
> The bottom line is that wages do not necessarily increase with
> productivity increases. If the employer is a Republican then
> wages will probably fall and so will output.

On balance, wages tend to. Most employers must be Democrats, then.

Relevant Pages

  • Re: Capital and Mark Monsons Land
    ... >>income of all workers fell, ... False measure, as productivity has risen, so has supply, however the ... this is what is meant by the "level of wages." ... helped shaped our economic understanding of organized labour today, ...
    (sci.econ)
  • Re: Cheap oil forever!
    ... Wages correlate with productivity, ... There's also the story of a Union boss who Ford told about a new factory ... and relied on recycling their wages as rent). ... because each employer can cut back without ...
    (sci.econ)
  • Re: Union Millwrights
    ... improving productivity reduces the need for workers, ... dead-flat wages for lower-middle-class workers. ... You are saying that WWII was much more of a force than the Unions? ... First the White collar workers in the South and the farm states did ...
    (rec.crafts.metalworking)
  • The Challenge of Boosting Productivity
    ... HAVANA, Apr 30 - Workers are facing thorny questions related to productivity, wages, participation in decision-making or unemployment at a time when the government is discreetly adopting measures aimed at finally pulling the country out of an economic crisis that has dragged on for more than 15 years. ... the Labour Ministry approved new general regulations on wages -- in resolution 9/2008 -- which extended the system of performance-based pay to the entire business community in Cuba. ...
    (soc.culture.cuba)
  • Re: Bridge loan to nowhere..
    ... Historically, when productivity increases, there may be a lag, but ... wages" are being sucked up by government in various ways. ... considering inflation, raw material costs, etc.  And if your ... charge and actual usage fees (per cubic meter) triples. ...
    (rec.boats)