The Sustainability Transition

to a New Green Economy

Increasing Labor Productivity and Unemployment

Posted by Maggie Winslow on November 14, 2011

How are we going to return to full employment in the U.S.?  We can’t just keep producing more and different consumer goods, hoping jobs will come from their production and consumption.  We don’t have the natural capital for that plan.  But, what if everyone could afford to work fewer hours so that the work could be spread around?

As Juliet Schor has documented, labor productivity has increased tremendously over the past 50 years yet this has not translated into fewer work hours.  In fact, since the 70s, work hours have increased.  In addition, only a fraction of the associated wealth, the value created by labor, has gone to the workers.  The lion’s share has gone to capital, in the form of increased profits, and higher wages for top management.

Increased productivity has translated into lower prices for many consumer goods and more material wealth for the average family.  Yet, U.S. workers have far less vacation time than workers in other OECD nations.

Increased labor productivity is also contributing to high levels of unemployment.  Many production processes have become automated, requiring far fewer workers for the same level of output.  Also, facilitated by technological advances, many jobs are being done by the customer, such as pumping gas and scanning groceries, also reducing the need for workers.  Unemployment has been further increased in the U.S. through the globalization of production.  There are over 200 million unemployed people worldwide, many competing for the same jobs.

When the competition for jobs increases, the power of labor decreases, especially for unskilled labor.  It’s hard for a worker to argue for higher wages or a shorter workweek when there are many unemployed people who would gladly take his or her  job.  This helps to explain why workers aren’t getting a fair share of their contribution to production.

So what is the solution? Decreasing labor productivity across the board is not a good solution.  Why work more hours for the same output when this time could be spent elsewhere?  What about increasing the fraction of income that goes to workers, letting workers work a shorter work week, and hiring unemployed people to make up for the lost hours?

The health of our economy depends on high employment levels and a more equal distribution of income so that people have money to spend.  While most all firms would benefit from higher national employment levels and a more equal distribution of income, most firms are not willing to hire more workers nor pay higher wages to workers than profit maximization dictates. (Some firms do pay higher than market wages, or “efficiency wages,” to keep workers motivated and maintain high retention levels. This is part of their profit calculation.) Due to the high costs of providing benefits, firms also have an incentive to get as much work from one worker as possible and to avoid allowing job-shares.  It is far cheaper for a company to have one more-than-full-time worker than two part-time workers.  We end up with a situation where all firms could benefit from higher national employment levels but no single firm has an incentive to work towards these goals individually.  There is a coordination problem.

The solution lies in government intervention: provide incentives for companies to hire more workers or to allow job sharing to counter the high costs of benefits.  Germany does this and it works.  Even better, the government could provide healthcare so companies would not need to bear this burden.  Then the many people who would love to work part-time and spend more time with their children, but can’t because they need health insurance, could work less.   More part-time workers would mean more jobs available for people without work.  That would be better for everyone.


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