Americans, Working Longer for Less


By Michael Mandel When I look at the latest gains in U.S. productivity, I feel like I'm watching an athlete stretch himself to the limit. According to the Dec. 6 report from the Bureau of Labor Statistics, nonfarm business productivity rose at a 4.7% pace in the third quarter, the fastest quarterly gain since 2003. On one level, that's a fantastic number, showing that U.S. businesses continue to outstrip European and Japanese counterparts on the productivity front (see BW Online, 10/11/05, "Winners and Losers").

Yet very little of the efficiency gains is being directly passed on to workers. Since the end of 2003, average real wages have fallen by 3.2%, while productivity is up by 5.1% (see BW Online, 11/3/05, "Long Productivity"). Even managers -- supposedly the best-off sector of the workforce -- have seen a 4% decline in real wages since the end of 2003, despite the fact that the unemployment rate for managers is a meager 2.2%.

What's worse, Americans are working harder and harder, even as they're getting paid less and less (see BW, 10/3/05, "The Real Reasons You're Working So Hard... "). The November employment report, released Dec. 2, showed that 18.3% of the workforce puts in 49 hours or more per week. That's up from 17.8% a year ago.

LABOR SHORTAGES. This combination of insane work hours with falling pay can't go on, at least not without imposing damaging stresses on Americans. So far, the rising housing market has helped to soften the blow, since homeowners have been able to count their capital appreciation in their few spare moments. But as the housing market cools, that source of solace will fade away.

So what will happen next? One possibility is that the labor market will tighten a bit more, driving overall unemployment down below 5%, where it has been stuck for months.

Certainly some areas of the country are starting to report labor shortages, which could cause real wages to move back up again. For example, the unemployment rate in the Los Angeles area is down to only 4.3% -- below where it was for most of the 1990s boom -- and wage increases seem to be picking up. That metropolitan area could turn out to be the forerunner for the rest of the country.

GLOBALISM'S TOLL? The other possibility is that this really is the age of capital, not labor. With so many new Chinese and Indian workers entering the global labor market, wages in the U.S. could continue to be beaten down. In that case, the benefits of higher productivity will mainly flow to investors, rather than workers, for the foreseeable future, as U.S. pay starts its long, slow convergence down to the global norm.

I can't decide yet which alternative I find more likely. My native optimism says that the fall in pay is only cyclical and will soon be reversed. But my realistic side is beginning to wonder whether this is the time when the toll of globalism finally comes due for the U.S.

Mandel is chief economist for BusinessWeek in New York


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