Future Friday: Does increased productivity translate to higher wages?

by Michael Haberman on May 12, 2017 · 0 comments


Last week while on vacation I was reading Martin Ford’s Rise of the Robots, not exactly your typical beach reading, but interesting nonetheless. Ford was talking about the rise of technology in the 1990’s and the effect it had on wages. His analysis raised a question for me. I hope you can help me answer it.

Productivity and wages

One of the supposed tenets of business is that as productivity increases profits increase. Most employees hope that as profits increase so will wages. In the 1980’s we had major advancements in technology usage that did create better jobs working with computers. These jobs did allow people to make better wages than earlier. The recession of the early 90’s burst this tech bubble and many people struggled to find new work. Changes in technology contributed to a jobless recovery because companies used more and more technology to supplant people. Productivity went up but the number of jobs did not.

In the 2000’s technology continued to accelerate and productivity rose as companies learned to take advantage of this increased technology. Even more people were put out of work. As a result of more computers and machines replacing workers productivity rose for the workers left but wage increases fell far short of the growth in productivity. Rather than increasing the value of workers, technology was actually making those employees less valuable. As Ford says, “Both the share of national income going to labor and the labor force participation rate declined dramatically.”

Expectations

Many people, especially employees, have the expectation that as their productivity increases so should the amount of money they receive for doing their job. Unfortunately that does not appear to be happening. The question is should there be higher wages for producing more if the reason for the increase is not the skill of the employee but rather the capabilities of the technology? When I make an employee more productive by giving her technology, but make her no smarter, do I really need to pay for that? For example, if I have an employee that bakes pizzas, today that requires skill on her part. The faster she can make quality pizzas the more she should be rewarded, correct? But what if I bring technology in that can make those pizzas faster, more efficiently and just as tasty, and I relegate the employee to someone that presses the buttons on the pizza robot? Do I really need to pay the employee more because more pizzas can be produced or do I reduce her pay because the job now requires less skill on her part?

The answer may depend on your ethics and sense of “justice”

There are several options of what organizations may do in a situation like this. Here are some of the alternatives I see possible;

  1. Keep that employee at her current rate and increase her pay as the productivity increases.
  2. Keep the employee at her current rate of pay, but explain there will be no more increases.
  3. Terminate the employee and hire another worker at a lower rate that only has to be trained to push the right buttons, because they don’t need to know how to bake a pizza.
  4. Eliminate as many workers as possible replacing them with robots, that way you can justify giving an increase tied to productivity to the employees that are left.
  5. Totally eliminate employees and go to a totally robotic system. See the YouTube video.

Part to the discussion of future employment is how much of an “ethical” obligation will companies feel to keep people employed. As we move toward a guaranteed income system, can companies avoid contributing if they keep people working? Or will companies feel the moral need to keep people working, much like companies feel the moral need to be good stewards of the environment?

Where do you think we are going with this? Which of these options would you choose? What about your management team? Have you seen this degradation of pay in relation to productivity in your firm? Make a comment below.


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