Productivity is up, but wages aren’t

Janet Babin Sep 4, 2008
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Productivity is up, but wages aren’t

Janet Babin Sep 4, 2008
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KAI RYSSDAL: Maybe it’s true about bad things coming in threes. Because they certainly did today for the economy.

The first two are fairly straightforward. The big retail chains reported softer than expected sales last month. Discounters were the bright spot for a buying public looking for bargains. And first-time applications for unemployment benefits rose last week.

The third one, though, takes some explaining. The second quarter of this year was a very productive one for American businesses. That’s what the government said this morning. The Commerce Department also reported that labor costs actually decreased. That takes some of the air out of Fed Chairman Ben Bernanke’s bete noir — inflation. But it might also keep workers salaries low.

Marketplace’s Janet Babin reports from North Carolina Public Radio.


JANET BABIN: The Labor Department says productivity vaulted to a revised annual rate of 4.3 percent. This is not what the experts had expected.

Chief economist Chris Low at FTN Financial in New York says when the economy’s in the doldrums, productivity usually falls.

Chris Low: What it tells you is that companies are wrestling with rising commodity prices, and they are tightening production in ways that they haven’t in prior cycles.

Increased productivity will help companies rein in costs, and help to steady inflation. But Low says those gains are coming at the expense of workers. Historically, wages rise with productivity — but labor costs were down.

Business professor Peter Morici at the University of Maryland says this time workers weren’t invited to the party.

Peter Morici: Most of the gains have been going to the very top of the economy — the large bankers, the hedge-fund traders and so forth. The workers are creating wealth, but they’re not getting to share in it.

Fewer of us even have jobs these days. The ADP National Employment Report says private payrolls were down 33,000 last month.

Morici says workers without jobs can’t buy a whole lot from all these productive companies.

Morici: Businesses should be concerned that workers are not sharing in improved productivity because that’s their consumers. Also it’s the morale of their workforce longer term.

Tomorrow, the Labor Department releases employment data for August. The forecast is for more job losses.

I’m Janet Babin for Marketplace.

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