Productivity Gains...Who Gains?

There is an interesting article in the WSJ today about "Human Capital Management" systems. Retailers including Ann Taylor and Wal-Mart are using software systems to schedule workers, especially those working "on the floor." I have dealt with software vendors who are in inventory management, supply chain optimization, and other "operations" optimizing systems, and am familiar with the value propositions behind them. What is ironic about this particular software is the use of the "human capital" phrase. Almost every CEO will say that his/her company's biggest asset is its people- more important than assets like cash, equipment and inventory. Now the employees' time is being managed for efficiency, like these other assets (which are often managed by systems called 'Asset Management Systems.') It is difficult to swallow that 'human capital' is just like 'financial capital' which just needs to be managed for maximum financial ROI.

Interestingly, an article titled "Mixed Economic Data Show A Changing Business Cycle" in the same WSJ tries to explain why the wages of employees are under strain when the productivity is rising. The classical economic argument is that increasing productivity means more output for the same work-hours, and this allows firms to pay their employees more.

Another article on the same theme, "High-Degree Professionals Show Power- Survey Highlights Worry of Winners, Losers in Economy" reads as follows: 'Workers with professional degrees, such as doctors and lawyers, were the only educational group to see their inflation-adjusted earnings increase over the most recent economic expansion, adding to the concern that the economy has benefited higher-earning Americans at the expense of others.

Workers in every other educational group -- including Ph.D.s as well as high school dropouts -- earned less in 2007 than they did in 2000, adjusted for inflation, according to data from the Census Bureau. Data don't include 2008 earnings.

The recent data are the latest reminder of how college degrees, long seen as a path to the middle class, no longer guarantees fatter paychecks every year. The statistics also indicate how deeply economic divisions have grown despite the economic expansion that started in 2001. Both presidential candidates have proposed policies to address this inequality.

Economists cite a number of reasons for falling wages for people with a bachelor's degree. Open borders resulted in blue- and white-collar jobs being sent abroad -- and skilled immigrants competing for jobs in the U.S. Job growth during the 2001 to 2007 expansion was weak compared to the late 1990s boom, thus putting less pressure on employers to dole out pay increases. Rising health-care costs are also a bigger part of total compensation than they were in the past. The Census data measure income, which doesn't include the health-care bills employers pick up for workers.'

The article includes the following chart- it is being included here because it is quite interesting:

Based on my experience in industry, the productivity gains have been captured by management and shareholders, leaving almost nothing for the workers. The productivity gains are real, but management has effectively used tools like outsourcing, combining jobs, downgrading jobs, having professionals work more hours because of fear of loss of jobs, and others to keep nominal wages almost flat over the past decade. Management has rewarded itself well for a job well done- one has only got to look at the increase in CEO pay during the same time period. Shareholders have done well, in capturing the earnings gains that resulted from higher productivity.
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On Monday I had commented on the F&F nationalization. In a piece titled "U.S. Seizes Mortgage Giants" WSJ says that "Bush administration officials argued that the cost of doing nothing would be far greater because of the toll on the economy of falling home prices and defaults in the $11 trillion U.S. mortgage market.

Mr. Paulson noted that more than $5 trillion of debt and mortgage-backed securities issued by Fannie and Freddie is owned by central banks and other investors world-wide. "Failure of either of them would cause great turmoil in our financial markets here at home and around the globe," Mr. Paulson said.

By taking this action, the government has seized control of the vast bulk of the secondary market for home mortgages and will have a more direct responsibility than ever for solving the housing crisis. The intervention also marks the failure of the public-private experiment that was created to boost home ownership among Americans. Fannie and Freddie were created by Congress to help prop up the housing market, and investors have long believed the government would bail the companies out in a crisis. But the companies have long been owned by private shareholders seeking to maximize profits."

Ostensibly the current administration was worried that Saddam was developing dangerous weapons, and acted- resulting in the deaths of a few hundred thousand Iraqi people and a few thousand of our own. But when the leaders of F&F were creating an even bigger financial bomb, the administration was asleep at the switch. Now, when the bomb is about to explode, all of us are asked to "share the pain" and "sacrifice."

The answer, my friends, is blowin' in the wind....

How many roads must a man walk down
Before you call him a man?
Yes, 'n' how many seas must a white dove sail
Before she sleeps in the sand?
Yes, 'n' how many times must the cannon balls fly
Before they're forever banned?
The answer, my friend, is blowin' in the wind,
The answer is blowin' in the wind.

THANK YOU, Bob Dylan, for these words and the song.