The latest reading on productivity in the American economy offers cause for worry. A front-page headline in The Wall Street Journal from March 31 tells us this: “Productivity Lull Might Signal Growth Is Easing.” The term “productivity” is a measure of how much individuals produce per hour, on the average. The way in which we determine “productivity” is to take the Gross Domestic Product — the sum of all goods and services produced nationwide — and divide it by the total number of hours worked.
Since the 1990s, our nation’s productivity has been on the steady decline. Why? Because the economy itself has been changing.
In our lifetimes, the American economy was fundamentally a manufacturing one. But when American multinational corporations started to outsource their work to China, India, Malaysia, and points east and south, the nature of our economy changed.
We became less and less a manufacturing nation and more and more an economy engaged in delivering services. My personal history in the labor movement dramatically describes the transition. I was the assistant president of the International Ladies Garment Workers Union. I worked to unite the ILGWU with the Amalgamated Clothing and Textile Workers Union on the grounds that, as the saying went, “In union there is strength.” We did merge to form a union called Unite — the Union of Needletrades, Industrial and Textile Employees.
But all to no avail. Outsourcing was taking its toll. To keep its head above water, Unite merged with the Hotel Employees and Restaurant Employees International Union — HERE — to form an organization named Unite-Here. After all, they haven’t yet found a way to outsource the labor that goes into making beds in a hotel, serving food in a restaurant, cutting hair in a barbershop or washing clothes in a laundry.
And so we return to our original query: Why is productivity on the decline in the United States? In large part, it is due to the fact that productivity has always been low in the service sector — and the service sector keeps growing as the manufacturing sector goes into decline (or abroad).
Does this decline in productivity mean that the economy as a whole is in decline? Not necessarily. The economy as a whole is not limited to manufacturing and service. There are other sectors: transportation, construction, agriculture, fishing and, of course, gambling. We keep busy.
Our country does not lag in its many sources of production. Nor is there a shortage of goods coming into the stores; international trade makes sure of that. Whatever we don’t manufacture, we import. The worry is that the captains of our economy tend to reward their workers based, to a significant degree, on a calculation of their productivity. When productivity goes up, wages go up. When productivity drops, so do wages. In other words, the changing nature of our economy means that there’s still plenty to go around, but more and more people can’t get their hands on it.
In the short and long run, our chief concern is whether the great mass of working people has the income to consume what we produce. If not, our market economy will collapse for want of a market — as it did in the Great Depression of the 1930s.