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The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

The Speedup Thesis



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Mother Jones has published an article on what authors Clara Jeffery and Monika Bauerlein call “the Great Speedup.” I don’t find the thesis advanced by Jeffery and Bauerlein very convincing, but the article is a valuable window into how many Americans think about our changing economy:

In all the chatter about our “jobless recovery,” how often does someone explain the simple feat by which this is actually accomplished? US productivity increased twice as fast in 2009 as it had in 2008, and twice as fast again in 2010: workforce down, output up, and voilá! No wonder corporate profits are up 22 percent since 2007, according to a new report by the Economic Policy Institute. To repeat: Up. Twenty-two. Percent.

My read is that Jeffery and Bauerlein are conflating a number of distinct phenomena. Note their reliance on economywide aggregate numbers. A few questions worth asking:

(a) How may Americans work for for-profit corporations?

(b) How many Americans work for corporations that have seen their profits increase? Have some corporations seen profits increase by 22 percent and have others seen profits increase by more or less than 22 percent? Of the corporations that have seen their profits increase, to what extent can the increase in profits be attributed to economies in labor inputs versus other inputs, the globalization of the supply chain (a factor the authors briefly acknowledge, to their credit), to the creation of barriers to entry through the use of intellectual property protections and other measures, etc.?  

(c) Has productivity increased evenly across all sectors and across all job functions? If the answer is no, which it is, have compensation levels followed the same pattern in all sectors and job functions?

(d) Have we seen an increasing reliance on pay-for-performance schemes, which would tend to drive wage dispersion across workers within a given business enterprise?

 

This is nothing short of a sea change. As University of California-Berkeley economist Brad DeLong notes [11], until not long ago, “businesses would hold on to workers in downturns even when there wasn’t enough for them to do—would put them to work painting the factory—because businesses did not want to see their skilled, experienced workers drift away and then have to go through the expense and loss of training new ones. That era is over. These days firms take advantage of downturns in demand to rationalize operations and increase labor productivity, pleading business necessity to their workers.”

(e) Do firms have more effective sorting mechanisms that allow them to identify the most essential staff? Are the most productive workers more likely to quit and to be footloose than other workers?

How does corporate America have the gall? You pretty much know the answer, but for official confirmation let’s turn to Erica Groshen [12], a vice president at the Federal Reserve Bank of New York: It’s easier here than in, say, the UK or Germany “for employers to avoid adding permanent jobs,” she told the AP [13] recently. “They’re less constrained by traditional human-resources practices [translation: decency] or union contracts.” In plainer English, here’s Rutgers political scientist Carl Van Horn [14]: “Everything is tilted in favor of the employers…The employee has no leverage. If your boss says, ‘I want you to come in the next two Saturdays,’ what are you going to say—no?”

(f) Do we have comparative evidence to suggest that stricter labor market regulations might cause a bifurcation of the labor force, e.g., a rise in youth unemployment and non-employment? Are union contracts a boon or a burden in fast-changing tradable sectors?

Which brings us to another shared delusion: multitasking. Our best efforts at collective denial notwithstanding, simple arithmetic reveals that even after housewives entered the workforce, the work of housewives still had to be done. Sure, some of it—especially child care—was outsourced, often at rock-bottom wages [15]. But for many women, and a rising (though not yet sufficient) number of men, the second shift awaits each night. And it’s increasingly being joined by a third shift, as we remain digitally tethered to the office in the diminishing hours we’re actually home.

Multitasking seems the obvious fix—let me just answer this email while I help with your homework! But here’s the scary research news: Minus a few freakish exceptions, most of us cannot actually multitask [16]. Try to keep up a conversation with your spouse while scanning the BlackBerry, and empirical data shows [17] (PDF) that you do both things poorly. And not only that: If you multitask constantly, your actual mental circuitry erodes, and your brain loses its ability to focus. (Same with sleep: Aside from a tiny minority of mutants, humans perform distinctly and progressively worse [18] when they get fewer than eight hours [19] a night. Go ahead and cry.) [Emphasis added]

(g) Is multitasking the main source of economywide productivity gains or is it a strategy primarily employed by workers engaged in knowledge-intensive service work and in job functions that intrinsically require multitasking as routine information processing can increasingly be performed by machines?  

(h) Is it possible that the “freakish exceptions” are rewarded in the labor market for their talents, just as the freakishly attractive and freakishly hard-working and freakishly sleepless are rewarded in the labor market? Can we expect that an evolving economy will involve a shifting kaleidoscope of talents that are valued more or less over time, e.g., brute strength will grow less valuable, etc.?

How have we been so brainwashed? For a lucky few, money and perks help sugarcoat [23] the daily frenzy—anything from the workaday onsite gym to the rock-climbing wall, free dry-cleaning, massage parlor, and unlimited sushi you’ll find at the Googleplex [24]. Some heed the siren song of Tony Robbins [25]/Franklin Planner [26]/4-Hour Workweek [27]/Lifehacker [28]—pick your productivity guru. But for most Americans, it’s just fear—of being passed over at best, downsized at worst. Even among college grads, unemployment is twice what it was in 2007, and those statistics don’t take note of all the B.A.’s stocking shelves and answering phones. McDonald’s recently announced [29] that it had gotten more than a million applicants for 62,000 new positions. Enough said [30].

(i) Is it possible that some people aren’t brainwashed but rather than at least some people value non-monetary aspects of their work? (This is an issue of particular interest to me.)

Meanwhile, what’s passed off as the growing pains of a modern economy are—not to go all Marxist on you—simply about redistribution. For 90 percent of American workers [31], incomes have stagnated or fallen for the past three decades, while they’ve ballooned at the top, and exploded at the very tippy-top: By 2008, the wealthiest 0.1 percent were making 6.4 times as much as they did in 1980 (adjusted for inflation). And just to further fuel your outrage, that 22 percent increase in profits? Most of it accrued to a single industry: finance.

In other words, all that extra work you’ve taken on—the late nights, the skipped lunch hours, the missed soccer games—paid off. For them.

This will keep up as long as we buy into three fallacies: One, that to feel crushed by debilitating workloads is a personal failing. Two, that it’s just your company or industry struggling—when in fact what’s happening to hotel maids and sales clerks is also happening to project managers, engineers, and doctors. Three, that there’s nothing anyone can do about it.

No, no, and no. We got to this point because of decades of political decisions. To name but three: turning over the financing of elections to wealthy interests [32]; making it harder for unions [33] to organize; deregulating Wall Street (and completely wimping out on reregulating [34] it after the financiers nearly destroyed the global economy). And even after having watched these policies bring the global economy to its knees, Mitch McConnell & Co. [35] say that any questioning of corporate power is tantamount to rolling out the tumbrels. Please.

(j) If most of that 22 percent increase in profits accrued to the financial sector, should we reassess how we think about real economy firms? Could it be that addressing the pathologies of the financial sector is the right approach, not embracing more aggressive labor market regulations, collective bargaining, etc.?

European companies face the same pressures that ours do—yet in Germany’s vigorous economy, for example, six weeks of vacation are de rigueur, weekend work is a last resort, and companies’ response to a downturn is not to fire everyone, but to institute Kurzarbeit—temporarily reducing hours and snapping back when things start looking up (PDF [37]). Sure, they lag ever so slightly behind us in productivity. But ask yourself: Who does our No. 1 spot benefit?

(k) Though I’ve explicitly endorsed something like the Kurzarbeit strategy, we’ve discussed the facts concerning Germany’s vigorous economy, e.g., the central role played by integrating eastern Europe into the supply chains of German firms. 

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You’ll notice that I haven’t answered these questions. It is certainly possible that the answers to some of them will strengthen rather than weaken the Bauerlein-Jeffery thesis. 

On productivity, however, I do think it is important to remember the contribution of Hlatshwayo and Spence in their CFR report on “The Evolving Structure of the American Economy and the Employment Challenge.” On Germany’s vigorous economy, Hlatshwayo and Spence write the following:

We do know, however, that the German economy’s structure on the tradable side is really quite different from that of the United States, as is the current account situation. This may in part be the result of replicable policy choices; German reforms of the past decade have been designed with competitiveness and employment in mind. One element is particularly noteworthy: wage increases have been low for the best part of a decade. That appears to have had a material effect on export competitiveness in a range of manufacturing industries, such as industrial machinery. Subject to more detailed investigation, it looks as though the preservation of employment was part of a broad agreement among business, labor, and government, and that sacrifices were made to achieve this objective in the area of income growth. Interestingly, the income distribution in Germany is much flatter and appears not to have moved adversely, as it has in America.

Some will consider wage restraint an acceptable trade for less wage dispersion. 

The core insight of the paper is that employment gains have mainly come in the nontradable sector, not the tradable sector:

Between 1990 and 2008, jobs have seen a net increase of 27.3 million on a base of 121.9 million in 1990. Hidden by this figure is a multitude of differing employment trends across industries; the figures reported here are the net amounts. Almost all of those incremental jobs (26.7 of 27.3 million) were created in the nontradable sector. In the aggregate, tradable sector employment growth was essentially flat: some industries grew andothers declined. Within the period considered, employment rose for about a decade and then fell back to its 1990 starting level. As is clear in figure 4, the nontradable sector is large, and, in terms ofshare of total employment, became larger over time.

The problem, however, is that nontradable value added has grown far more slowly than tradable value added.

A few aspects of the nontradable VAP data are worthy of note. As mentioned earlier, the giant employers in the nontradable sector are government and health care. Both are experiencing declining VAP (-4 percent for government, -9 percent for health care). Construction’s VAP also declined by 19 percent from 1990 to 2008. The dominance of these sectors causes the declining VAP to overwhelm any sectors in which it is increasing. The result is modest growth of VAP on the nontradable side ofthe economy (about 0.7 percent per year). Moreover, government and health care employ large numbers of workers in the midrange of the income distribution. Declining VAP in these sectors has had the effect of depressing middle income growth and increasing income inequality, as the high endrose faster.

Wholesale trade’s VAP expanded very rapidly in the 1990s, reflecting dramatic increases in productivity and flat employment growth. According to a 2002 Bureau of Labor Statistics study, the industry’s productivity boom was caused by three factors: improvement in technology, specifically the introduction of systems like the Electronic Data Interchange (EDI); Internet communication to buy and sell products; and a rapid expansion in the size of wholesale businesses and the adoption of new business models. Accommodation, food service, and administrative and support services have low VAP. Even when discounting for part-time work, the figures are low. Moreover, accommodation and food service are high and rising employment sectors, so their low VAP further explains wage stagnation.Education has experienced declining VAP, as has construction, another high employment sector. A possible reason for the declining VAP in these sectors is the wage effect of increased competition for nontradable jobs, because jobs in the tradable sector were flat and the employed population continued to grow. Government VAP is essentially flat, perhaps because the government sector is relatively insulated from the price effects of excess labor supply. [Emphasis added]

The basic point here is that econonywide productivity gains don’t give us a very useful picture of how to think about the evolution of particular sectors, firms, and job functions. VAP is a proxy for productivity. What we want to know is how VAP has varied across sectors, and whether compensation levels have roughly corresponded with change in VAP.

I highlighted the passage above regarding wholesale trade’s VAP. One could argue that we should have seen more robust compensation increases in this sector in light of the post-1990 productivity boom. The trouble is that the improvements in productivity seem to have derived from investment in capital, including organizational capital, and job functions within this sector can be performed by a large number of less-skilled and mid-skilled workers. It is certainly true that collective bargaining could raise compensation levels, yet this would presumably accelerate the routinization and mechanization of the work involved.  

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Overall, the Bauerlein-Jeffery piece strikes me as a winner for the progressive mediasphere. It is punchily written and it reflects the deeply held beliefs of millions of Americans, many of whom would be interested in reading a book-length of Kindle Single-length treatment of the idea. I don’t agree with the thesis, but I’m confident that we’ll hear more about it in the near future. 



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