Fwd: Productivity Growth

[Jim Devine <jdevine@xxxxxxxxxxxxxxx>]

for what it's worth, the following was published in today's L.A.        TIMES.

> Date: Wed, 09 Feb 2000 07:36:51 -0800
> To: "Editors, Los Angeles TIMES" <letters@xxxxxxxxxxx>
> From: Jim Devine <jdevine@xxxxxxxxxxxxxxx>
> Subject: Productivity Growth
>
> Your front-page article ("U.S. Productivity Growth in '99 is Best in 7
> Years," February 9, 2000) asserts that surging productivity growth helps
> the country avoid inflation. This is only true if wages lag behind
> productivity growth. If the wages & benefits costs per hour increases in
> step with output per hour, that means that the labor cost per unit of
> output stays constant.  This only undermines inflation if businesses take
> cuts in their profit margins (which they have not been doing). That is,
> the anti-inflationary effect of falling labor costs per unit doesn't
> happen if workers share the benefits of their rising productivity. It does
> happen if wages fall behind,as indeed they have (as noted only toward the
> end of the story), so that inequality between owners and workers increases.
>
> Jim Devine
> Department of Economics, Loyola Marymount University

I feel a little bit bad because I didn't throw in the punch-line: the
success in the war against inflation (and more generally, against
stagflation) was intimately tied with the distributional battle which
shifted income to capital from labor. If anyone wants further explanation,
I can send you a copy via e-mail. Please ask off-list. (I presented a short
version of the theory & evidence at the URPE@ASSA sessions in Boston. If
you just want the short version, please ask.)

Jim Devine jdevine@xxxxxxxxxxxxxxx &
http://clawww.lmu.edu/Faculty/JDevine/JDevine.html