To DU Economists: What is the relationship between productivity and GDP?

[tom_paine]

We KNOW that the Busheviks are gaming the system like the Soviet Department of Toilet Paper Production. Now that they have had 3 years to "purge" departmenst of ethical or semi-ethical people and replace them with Busheviks who will unquestioningly obey their Imperial Masters, we KNOW.

But, as we stand here at the cusp and doorway between the Old Republic and Imperial Amerika, things are a curious mix of lies and truth (don;t get me wrong, I am grateful for the fact that the truth even occasionally squirts out of our Sovietized Formerly Free Press).

So I ask the DU economists, both professional and amateur. Help me make sense of the 20 year high rise in "productivity" and the 20 year high spike in GDP.

I recollect having heard people discussing the productivity vs. GDP bamboozle, but please refresh me...

[kcwayne]

1. I am an amatuer

But here is a discussion on GDP with a economics professor weighing in.

GDP

Since they left the trade deficit out of the last GDP number of 8.2%, and the trade deficit was significantly negative, GDP was overstated. Don't look for the media to correct themselves when the number is restated in the next couple of weeks.

Since productivity is a measure of goods output divided by labor costs, the answer is obvious. Labor costs are as a percentage of goods output are declining when you outsource the manufacture of the product to slaves. Slaves are very good for the productivity number.

[NewGuy]

8. Only GNP would include trade

GDP is the gross domestic product and does not include either trade or foreign labor. It is usually used when discussing labor and productivity because of these ommissions. These productivity numbers are not sustainable because they indicate people working both harder and longer. Eventually, either the GDP goes back down or more workers are hired.

This is the central argument we are still hearing amongst economists. Is this recovery real, in which case hiring will follow, or is it a temporary aberration in a recession. i.e. a double dip recession.

[RichM]

2. There is not necessarily a direct answer. Productivity just means

the amount of stuff produced per hour per worker. If this ratio rises, but fewer workers are employed, you can achieve the SAME overall GDP, but with fewer workers (or the same number of workers working fewer hours, or some combination thereof).

OTOH, if the same number of workers worked the same number of hours at a higher level of productivity, GDP would rise.

[kcwayne]

4. Worker hours are not directly part of the GDP calculation

GDP

GDP = C + GS + TD

Where C is consumption as measured by retail consumption
GS is government spending
TD is trade deficit (or surplus)

[RichM]

7. Nobody said they were. In fact, it's just the reverse: to calculate

productivity, you START with the gross product, and divide by worker-hours. That gives you product per worker per hour.

[kcwayne]

9. If that is how economist measure it, then it is a meaningless

number.

Since the output of things not sold through a retail channel, such as machine tools, mining, and building construction, is not included in the GDP directly, if you are busy in that sector doing alot of work, or not busy and laying off alot of people, it doesn't show up in the calculation in the short term. It only shows up well downstream of the event when the automobile that is made by the machine tool processed from mined ore and housed in the constructed manufacturing facility is finally produced.

As such, productivity measured thusly could only be analyzed on a 2-5 year trend.

[RichM]

11. It is indeed a somewhat meaningless or artificial number. It has to be

taken with a grain of salt. On the one hand, it does measure something -- it's supposed to roughly measure technological innovation & improved methods & organizational streamlining, etc. On the other hand, it's just an abstraction. It would be silly to take it too seriously. At best, it only has meaning in a rough & longterm sense.

[papau]

15. high inflation yields high productivity if not corrected - a misery index

Looting of financial assets yields "earnings" for financial/insurance service area, and earnings plus expense of service area is the "gross sales" of the service area, meaning productivity gain goes only to looters.

Service industry "sales" are in GDP, but hours worked are a wild guess. High productivity can equate to a misery index as folks are overworked and hours worked are guessed at!

[truthseeker1]

13. Thank you kcwayne

This formula is very helpful. How in the world can "they" (the govt. economists I suppose...whoever puts out this info) publish the GDP number without including the deficit??? That's just outrageous.

[el_gato]

5. exactly, which exposes the phoney nature of these figures

it is really a measure of the transfer of wealth to the capitalist class, i.e. the wealthy stockholders and CEO's than it is a measure of efficiency or productivity in the sense of physical definitions

so you can lay off massive amounts of people and force people to work under slave conditions and you will have a rise in "productivity" but is that a good thing?

only a morally bankrupt individual can say yes.

[La_Serpiente]

3. If the productivity rate gets too high

then they just won't hire people unless there is a demand for them.

I am assuming that employers are milking out everything they can out of every employee, almost to the point that they are just exhausted and have no life.

[HFishbine]

14. Double Take

What a hillarious Lieberman banner!

[papau]

6. There is no good measure of productivity in service industry - but

manufacturing - about 15% of the economy these days - measures output per whatever - could be person - but usually wages.

So to the extent great productivity, greater profits - assuming main cost is wages.

But with little value added in US as we outsource everything, the old relationships do not hold. Productivity is no longer an indicator of a healthy economy that is going to produce jobs or higher pay.

In Sum - 20 years ago, better productivity was key to better life of population. Now it just means investing in capital equipement(so as to use less labor) made outside the US rather than investing in US labor (buying captal equipement in US so as to get US jobs, hiring to meet increase demand generated by those jobs, more overtime pay as opposed to straight time overtime and temp workers, and shorter hours in service area, are all going the wrong way if you hope for a "better life")

The Bush tax cuts have slanted the Tax law so that Corporations are not doing anything UnAmerican - they are just doing what is logical to max return on capital.

Now is this a zero sum game - does better return on capital mean less for labor - - the answer has always been no as long as we had unions. But Bush is trying to kill unions - and is certainly not helping unions.

[dkamin]

10. Interesting article

I forget where I read it, maybe the NY Times, maybe the Nation, maybe somewhere else, discussing how the rise in productivity may be a mirage, because the Bureau of Labor Statistics has been pretty much fudging the numbers for some time now, by assuming that the average worker works approximately 40 hours per week, when we all know that's not true.

That writer argues that the productivity rise is fake, and is driven primarily by the fact that in a high unemployment economy, companies have all the bargaining power and are using it to effectively force workers to work longer hours, work at home, etc.

Growth in productivity is almost always linked with growth in GDP: if workers are more productive then GDP should grow at a proportional rate. GDP is most definitely NOT at a 20 year high, don't know where you heard that, that's just wrong. The fact that GDP has not grown commensurately with productivity is indicative of either something funky with the numbers (my belief) or a major systemic change in the American economy (also, imo, probably partially true).

[tom_paine]

12. Interesting post. I concur.