Productivity, Wages and Demand
Productivity and Wages: Successful Business Partners (PDF)
“Productively measures how efficiently economic inputs are converted into output, which are the goods and services that business sells. So when more is produced with the same or less we can increase income (that is value added) and potentially increase profit.”
Productively has one underling assumption, demand. If there is no demand then productively is not a factor. If demand declines, similar to our current situation, productively is everything. We see companies trying to deal with lack of demand by laying off large numbers of employees. Those left, do work harder and longer hours, but likely are producing significantly less as a result of decreased demand. This is one of the reasons wages are flat, there is simply no way to increase prices even-though everyone is working harder.
Productivity and Wages: Successful Business Partners
This paper provides a sample calculation which demonstrates how to think about wages and productively when plugged into your demand formula.
Sources:
Bureau of Labor Statistics – Productivity
CEPR – Price Byte
