Sunday, September 17, 2006

Productivity and wages returned

In my last post I echoed Prof Stephen Gordon's question: “why are wages tracking productivity in Canada but not in the US?”

I gave a brief mention of health care policies and questioned whether employer-provided compensation is one of the drivers between the wage/productivity discrepancy between the two countries. This reasoning seems to carry more weight than my other thought concerning the industry make-up between the two countries. I wish I would have given this more thought before I puked up my last post in a hurry.

The debate on this subject continued at Economist's View, where “Movie Guy” says:

It is essential to understand and address the entire U.S. business model: Increased business competition, U.S. trade policy, other U.S. government policies and regulatory requirements as well as competing foreign policies and requirements, and local lean business operating practices and costs all play roles in impacting the wage earnings and employer-provided compensation benefits provided to U.S. Middle Class and Lower Class employees.

Still, I think the strongest point can be made for employer-provided compensation benefits.
A lot of the attempts to answer the US wage/productivity puzzle seem to share the same flaw. James Galbraith describes this:
....the distribution of pay is important! ...but (to repeat) the distribution of pay is one issue, and the share of wages versus the share of profits is quite another.
Both issues say something meaningful, but they frequently seem to be used to describe the same thing.

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