I’m not so sure that improving productivity in services is harder than in manufacturing, but rather is indeed related to the lack of unions in services and the recent moves to outsourcing. Why? The crucial distinction is that you’re measuring productivity as output per unit of labor, while companies view it as output per unit of wages. In other words, companies look to maximize profit; one way they can do this is to pay their workers the same amount, but get more work out of them (your definition of productivity improvement). That’s hard, as it entails continuously training workers, redesigning processes, etc. The easier way is to cut wages or outsource the work to a cheaper place (after all, who cares if you have twice as many Chinese doing the job if each one costs 1/4 the wages of an American?).

The only time that managers undertake the difficult task of improving labor productivity is when they’re forced to because union contracts prevent cutting wages or outsourcing jobs.

An example is illuminating. Dell Computers had a policy for a very long time (not sure if it still holds) that all of their computers would be assembled in the U.S. But in order to keep that goal while still being price-competitive, Dell spent an incredible amount of managerial energy on improving the productivity of its laborforce. They would spend millions to figure out how to shave 10 seconds off a computer’s assembly time.

The rest of the computer industry decided instead to outsource their assembly lines to 3rd parties in China and Taiwan. After all, outsourcing requires very little thinking compared to the challenge of how to do the same job locally.

In short, I would assert that the service sector would see just as big productivity improvements as the manufacturing sector if it were unionized to the point that companies had no choice but to improve productivity rather than take the lazy way out and cut wages or outsource every job they can find.

I don’t disagree with your observation about the fact that unions have gotten an undeserved bad rap. However, the point about productivity is somewhat different. Productivity measures output per unit labor input. The application of capital to labor, as in manufactiuring, lets you show continuing gains in productivity. That’s much more difficult to pull off on an ongoing basis in service industries.

Dean Baker makes your point about white collar labor often. While they aren’t perceived to be unions, what the heck are the AMA, the AICPA, and the state bar associations other than the oversight bodies for craft guilds?

Remember that 100 years ago, manufacturing jobs were poorly paid, dangerous, and led to shortened lives with poor health and injuries rather than a ticket to the comforts of the middle class. What made manufacturing the source of high wage, comfortable jobs for low to semi-skilled people were the changes fought for by unions.

As unions have declined, it’s no surprise that jobs pay less for more work and fewer protections. There’s no intrinsic reason why service jobs can’t be unionized. After all, cashiers at WalMart, office workers locked in their cubicles, and even doctors battling with insurance companies are all faced with asymmetric power in the bargaining process. And at their most basic, that’s what unions address.

Anyone who believes services are somehow different from manufacturing and can’t be unionized should check out Hollywood, perhaps the most unionized industry out there. The various guilds have managed to protect their workers against extremely asymmetric negotiations and manage to ensure fair distribution of profits, benefits e.g. health insurance and pension plans, etc. all while not stifling the creative process of movie making.

I think if the rest of the service sector wants to improve their lot, they need to realize that unions aren’t just for high school grads with dirt under their fingernails.

Agreed 100%, and didn’t get into the “growth hasn’t been that great” argument for precisely the reasons you raised. And add to that, as Michael Shedlock has pointed out, that our GDP is exaggerated due to hedonic adjustments, which no other advanced economy makes.

If you had to point to a single culprit, it’s the shift from a manufacturing to a service economy. You can’t get the same kind of productivity gains in a service economy that you can in one that makes goods.

And I also wonder how much of the productivity gains in service business comes from real Tayloresqe process improvements, versus simply squeezing more out of workers. Everyone I know who works in large firms is doing 50% more than they did 5 years ago for very little more in inflation-adjusted pay.

I don’t understand why prevailing stock market multiples have increased. 18 is now regarded as normal, when in my youth, that was a sign of a very toppy market.

Capitalism’s “Golden Age” ended in the early 1970s, an ending that, with the early 1980s double slump, became evident to all but the most superb ideologues.

*See, for example, Angus Maddison’s OECD work, UMass’ James Crotty’s papers on neoliberalism, Dumenil and Levy’s papers on profit rate differentials, and many more, all of which detail the above.

I would include the data but have found that, no matter how respected the sources, it is generally dismissed in favor of financial markets performance and/or ‘market knows best’ nostrums…as though it is possible to grasp the latter without comprehending the highly sharpened contradiction between real and financial. A failure which, you see, has had much to do with evident poor to no grasp of why (and how) we are where we are today.

We’re one of the largest houses, and we were discussing whether to go long or short Monday night. We decided to go long because … we thought with the S&P so far down there was a good chance the Fed would lower its rates and the market would go back up. So Fed, thank you. You’re predictable. But you shouldn’t be selling anything of value for free.

Testimony of Chairman Alan Greenspan
The economic outlook
Before the Joint Economic Committee, U.S. Congress
June 9, 2005

http://www.federalreserve.gov/Bo…092/ default.htm

Although a “bubble” in home prices for the nation as a whole does not appear likely, there do appear to be, at a minimum, signs of froth in some local markets where home prices seem to have risen to unsustainable levels.