Monday, 13 October 2014

American Labor Productivity More Than Halved Since 1990!

When you read the headline you might have thought “What the hell is this guy saying? Labor productivity is very strong in the US.” This way of thinking is right if you depend on conventional methods of economic data gathering and processing. However, if you change your perspective you will see a brand new and surprising world.

Today, under traditional methods labor productivity is measured by dividing a special Gross Domestic Product (GDP) to the total hours worked of all persons, in a year. So, here is the conventional formula:

Labor Productivity = Special GDP*/Labor Hours

*(Excludes the following: General government, the output of the employees of non-profit institutions and private households, and the rental value of owner-occupied real estate)

First of all, this special GDP, or annual production of a country, does not include state economy. State economy is the centre of bureaucratization and inefficient source usage in the advanced industrialized money economies. Currently, in each developed country, state controls nearly half of the economy.


By Stefan Kühn on de.wikipedia, via Wikimedia Commons

Additionally if you measure labor productivity with paper money you will not see the impact of inflation on it easily.

For example, when you measure the American labor productivity with the US dollar, as it is done today, you will notice that it is continuously increasing. Like it is clearly seen in the table below:


CLICK THE TABLE TO ENLARGE


The US Labor Productivity Measured by the US Dollar = 1971: 47.86 dollars, 1980: 55.18 dollars, 1990: 64.54 dollars, 2000: 81.17 dollars, 2014 (2Q): 105.97 dollars

According to this calculation if someone work for an hour in the US in 1971 he/she would earn 47.86 dollars. By the end of 2nd Quarter of 2014, this figure jumps by 121.4% to 105.97 dollars. Since 1990, labor productivity rose by a significant 64.19%, in US dollar terms.

Now let’s see what happens if we radically change our perspective. How can the picture change, if we measure the US labor productivity with a real good for instance, gold? Here is a detailed table on this issue:


Period
Labor Prod
in $
Gold Price
per Oz in $
Gold Price
per Gr in $
Labor Prod
 in Gold
1960
34.60
35
1.1253
30.75





1971
47.86
35
1.1253
42.53





1980
55.18
593.75
19.0895
2.89





1990
64.54
376.3
12.0983
5.33





2000
81.17
275.05
8.843
9.18





2008
96.83
845
27.1673
3.56





2013
106.57
1202.3
38.6548
2.76





2014 2Q
105.97
1321.8
42.4968
2.49





Chg (1990-2014)
+64.19%


-53.28%


Sources: US Bureau of Labor Statistics, tradingeconomics.com, goldprice.org

In this table, we see that US labor productivity in terms of gold first crashed during 70s, than modestly recovered in 80s and 90s, but dived again during 2000s and continued falling after 2008 Crisis, despite more than 3 trillion dollars money printing. There is no continuous rise! Contrary, labor productivity collapsed during 2000s. According to the latest data it is almost halved, compared to 1990!

In other words, in 1971, by working an hour, an American worker could earn 47.86 dollars and buy 42.53 grams of gold with this money. However, by the end of second quarter of 2014, despite earning 105.97 dollars he/she can only buy 2.49 grams of gold with it! Until 1971 there was a state monopoly on gold market and gold price was artificially fixed at 35 dollars. So crash of labor productivity in 1970s was stemming from normalization of gold prices. But even we exclude this fact we see that by the end of 1990 an American worker could buy 5.33 grams of gold with his/her one hour work. However this amount fell by 53.28% to 2.49 grams by the end of second quarter of 2014. In other words, the US labor productivity lost more than half of its real value since 1990.  

So what is the meaning of this for the world economy? If the FED is expecting to gear up the US economy with a slightly rising employment, trusting that American labor productivity is so strong and even a small amount of job creation would lead to enough GDP growth, this will not happen! Real US labor productivity is going nowhere, it is collapsing. The FED needs GDP growth to lower currently unsustainable rate of public debt to GDP and pay US state debt. Otherwise it needs to create inflation and decrease the real value of public debt. This option is only possible by opening a new money printing or QE package rather than ending the current QE or hiking interest rates, as generally expected today.

There is no doubt that labor productivity situation is same in the other developed regions like Europe, Japan or Russia. So why is the labor productivity collapsing in old, matured or advanced industrial money economies.

Because these economies reached natural limits of an industrialized money economy. Aging population, bureaucratization, crumbling nuclear family, alienation, depression, excessive inefficient source utilization, rising debts and etc. spoil and lower labor productivity. Decreasing labor productivity and structural deflation are important characteristics of today’s dying advanced industrial economies.

Matured or developed money based industrial economies seem to end up with a financial crisis bigger than 2008. This worldwide shake-up would not kill money based or capitalist way of production completely but it will open gates for a new production mode, which is not based on money but information.