Thursday, September 13, 2012

Students in Labor Economics discuss an article on US labor productivity

Students enrolled in Labor Economics are currently studying the labor supply curve. This includes discussions of the labor-leisure choice model, hours of work, and labor force participation. Labor productivity is calculated as output divided by the number of hours worked and is an important economic indicator.



Students read a recent article from The Economist addressing the trends in US labor productivity and a critique of several published journal articles on the subject. The article can be found here. After reading the article, students formed groups to put together a short statement about the article.

Read some of what they had to say!

...in recent years [labor productivity] slowed greatly because of slower innovations despite the disappearance of social inequalities...Mr. Gordon lauds the recent boom in cellular and Internet technology but says it will stagnate...
The American Bureau of Labor Statistics stated that labor productivity grew faster in the second quarter (of 2012). Before 1750 standards of living were low and grew at a very slow pace, yet within two centuries that standard greatly increased (plenty of food, clean water, controlled indoor temperatures, etc.) In the 1970s the pace started to decrease. Mr. Gordon attributes this to six issues: aging, debt repayment, a broken education system, global labor arbitrage, inequality, and pollution. He believes that this has and will cause a decrease in labor productivity.
Gordon's argument is not new...It is the kind of argument that attracts attention and gets brought up in a time of economic insecurity. His main point is that we have reached a plateau in our advancements as a nation. He does not say that this is the "end of the line", but we are certainly in a technological, social, and economic slump which we need to turn out of by re-energizing our technological advancements. 
...Mr. Gordon believes that our innovative days are over because the gains that have happened in history were "one-time-only" changes. Gordon has an even bigger theory of how the US economy will be depressed even further, but he leaves out many factors of why our economy can prosper. Every time the economy is in a slump some economist claims that the US is destined for "secular stagnation" when the economy has turned around after every stagnation.
The main idea of the article is historically we have been here before and we will get out of this rut eventually. Also there are different periods throughout history where growth was very slow and a few where growth was very high. We are not going to make any large jump in our standard of living, but we will be just fine as history has shown us.
Gordon's statement that the standard of living will not increase seems to be exaggerated. For the lower 99% of the income distribution to not see an increase, the top 1%'s would have to increase at a rate that would see them with all of the wealth before the turn of the century.
Mr. Gordon is wrong. The author of the article believes there is still more to be discovered. 

What is your response to the article?

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