Today's job numbers

So productivity growth now is at the same level as in 1995 -- which was at the very cusp of an unprecedented economic boom. And trending opposite of 2001 - 2002 -- the last recession. So Michael, your point is that we can expect 5 years of a booming economy and outrageous stock market returns, maybe a good bubble or two, maybe someone named Clinton in the Whitehouse to make the lib'ruls happy?

I've never seen you show such irrational exuberance!

Didn't Productivity reise at a healthy 2.6% last quarter, as reported yesterday?

Americans are paid too much for too little work, which is driving down productivity numbers. They spend their days surfing the Internet instead of getting their sorry butts busy. Modern administrative workers are nothing more than overpaid bolt-turners by modern complexity standards, and should not be paid as much as they are. $40,000/year to type up meaningless reports? There's no reason this can't be done for 1/6th the price in India. Americans need to accept that they are overpaid, lazy, and generally do incompetent work compared to their foreign counterparts; thus must accept far lower pay for their meager efforts. If pay were pushed down we would see higher productivity numbers (same work for lower pay equals more output for less capital). As an idea to consider: perhaps Bernanke ought to substantially drop the rate and allow inflation to run amok for a few years so we can devalue employee wages to more acceptable levels? Obviously, there would be no inflation adjustments to the wages. The strategy of Republican deficit-spending has been precisely this; run up debts and then devalue the dollar to devalue the debt. We can do the same with employee wages.

Quarterly productivity numbers bounce around a lot...what matters is the year over year changes.

Still, the most recent quarter was anything but poor. If Q3 also turns out the be in the same range, then perhaps the worst ws just a 12-month period that is already behind us.

How about Multi-Factor Productivity? How has that done on a 7-year scale?

I partially agree with Brandon that on the bottom half of the American skill ladder, wages have yet to decline to match global standards. But at the top 25%, wages can still only rise.

Let me illustrate :

Director-level Marketing/Finance/Engineering Professional at Major Tech Company :

US : $200,000 India : $150,000 or so.

Senior Engineer :

US : $100,000 India : $50,000 or so.

Entry-Level Engineer :

US : $50,000 India : $15,000 or so

Security Guard/Construction Worker/Waitress :

US : $25,000 India : $2,000

Notice the ratio between the two, at every level. So as you can see, US and India wages have already equalized at the top. The further down you go, the more the gap widens. This is unsurprising, but shows that the future bodes well for highly skilled people, but poorly for those in the US with unskilled jobs.

I'll assume your numbers are accurate and from a reliable source because I don't care to take the time to verify. I would argue that "Senior Engineers" and "Director-level" people in India only receive wages that high because there were not enough workers in the pipeline 15 years ago to have created the necessary high-supply of senior-level workers today. You'll note that at the more recent level ("entry-level"), engineers in India only make $15,000 and U.S. engineers make 333% higher wages. As this influx of new engineers works its way up the pipeline it will depress wages for senior engineers with the influx of supply. This will go for "Directors" as well. Executives are still nothing but employees, unless they negotiate to get significant stock ownership as compensation. Personally, I think that kind of thing has to stop, too. I don't care if you're CEO... you're still an employee. The ownership-class must stop treating executives as anything more than employees in order to increase supply and push down their wages.

Wages will normalize eventually, but they will normalize much lower than your suggested "highs" because the supply at the senior level will grow markedly in the next 10 years. We must flood the market with more college-educated people from other, low-cost countries so we can grow profit margins.

There are a number of things pushing wages up in the U.S. That India doesn't have. Real Estate Prices have been pushed high in the U.S. because people with high wages have bid the price up. A carpenter can earn 20 to 30 an hour in the U.S. This drives up real estate prices too. Transportation is very expensive in the U.S. because most people must own cars. This Means that one cannot survive in the U.S. on 15k. The high cost of living drives people to get educations and seek higher paying jobs. This leaves a smaller pool of workers to do low skilled jobs. I think what is likely to happen is that over time the low end jobs in India will get boosted up. At the same time, as we continue to find ways to outsource, low skilled and entry level jobs in the U.S. will loose ground.

I wonder how much professors get paid in India. The thought of spending $50,000-$100,000 on an education then only getting paid $15k is scary. Nobody would go to school or we would have to study abroad in India.

This might not bee a bad thing. I think too many people go to college in the U.S. We need more tech schools. You don't need a degree to be an administrative assistant, sell door to door, or run a store, yet all these jobs require degrees.

Brandon W,

Nope. You are wrongly assuming that the demand is fixed. At the top two tiers of my list, wages in the US have been rising strongly as well. At the top, both US and India wages will continue to rise, as creation of new jobs at this level is far faster than at the lower levels.

At the bottom is where Americans are doomed. The number of new jobs created here is much less, even as the number of people coming on-line to do them (from India and elsewhere) grows. These wages can only go down.

Kartik, you and I completely agree that most Americans' wages will become splendidly more affordable in the coming years. I would make a wild guesstimate that it will be the lower 60% of the workforce who sees this reduction in wages. Certainly, some higher end jobs will remain reasonably-well-paying, which is good because my businesses exclusively target families in the upper 25%. But I also think many "safe" jobs are in for a surprise. For example, I've talked with a lawyer friend about outsourcing legal work to India. It's already being done by accounting firms and that will grow; so there is a great deal of room to profit from southeast Asians trained in US law. There are 3 billion people in SE Asia, and even if they create engineers at 1/5 the rate the US does they are producing twice as many. We are going to be able to drive down the cost of engineering very easily in the next decade.

"We are going to be able to drive down the cost of engineering very easily in the next decade."

Not so much. Maybe on the low end, but the WW demand for engineers is still rising at such a rate that all the engineers in the US + China + India will find employment, without US wages going down.

Do you know that salaries for Indian engineers has been rising at 12% a year for the last 5 years, in Rupees? Couple that with a Rupee that has appreciated 15% against the dollar, and the salary on an Indian engineer in US Dollar terms, has doubled since 2002. The Indian expertise that costed $8000/yr in 2002 is $16,000 a year now.

I agree that the bottom 60% in the US will suffer, but that the top 25% ($80K or higher) will continue to surge. Mid-level engineers will make the cut.

I think this will result in the MS degree becoming a standard for new engineers in the US. I have always wondered why a student spending 4 years on a BS doesn't just spend another 1 year on an MS, particularly when Assistantships cover tuition costs in most cases. Just 1 more year in college provides a big boost to both wages and job prospects for engineers, and even then, the student is only 23 by the time they enter the workforce.

The MS degree will become the norm for new US engineers.

If you do not own income-producing assets, and only derive income from employment (or 95%+ from employment), then you are nothing more than an employee. If you are an employee your wages are subject to depression through increased supply in the labor force. Within 10 years, India and China will be able to produce even more engineers causing a decline in the global wages of engineers - particularly with Bachelor degrees. GK's point about MS degrees may well make sense, and I would agree that one will be mandatory if an engineer wants hope of keeping their income higher. But fewer than 10% of people in the U.S. have Master's degrees, which I doubt will change substantially anytime soon. What's more, if I can hire two experienced engineers in India for $32,000 when I have to pay $65,000 - plus benefits - to an MS-degreed engineer in the US, it makes more sense for me to hire two engineers to keep tabs on one another and save money.

Simply put, I utterly disagree that we can't push engineering wages down. It's already happening at the low-end, and we will be able to do so further as the output of engineers from SE Asia increases. I would project that 90% of engineering can be outsourced to foreign engineers at much lower costs within the next 10 years. The other 10% of engineering that will need to be done in the U.S. will keep those engineers - likely with MS degrees - in the top 20% of income earners.

GK = Kartik = me.

Actually, 20 - 30 years from now even that "bottom 60%" will be living a life of incredible material abundance by our standards, although it's likely that the pundits and politicians of the future will be insisting that "real wages" had been stagnant the whole time, and will have faulty data that can be so interpreted.

I further predict that 15% of the population then will be living in "poverty" -- though they'll each have 9 TVs, 4 cell phones, 3000 sq foot homes, nannies, and iPods and computers implanted into their brains, and they'll all be fatter than us.

And all of us will be old geezers complaining how life was so much better back in 2007.