U.S. Productivity Gains Misleading
While data shows that American productivity has increased exponentially in the past three decades, that is nothing more than a façade given that most of those production gains are driven by offshoring, according to two fair trade advocates.
Writing in The New York Times, Alan Tonelson and Kevin Kearns, members of the U.S. Business and Industry Council, claim that for years the U.S. Labor Department has been leading the American people to believe that the productivity of its workers has been skyrocketing.
The problem is, the Labor Department fails to differentiate between American and foreign workers when calculating productivity.
“Labor productivity figures, which are calculated by the Labor Department, count only worker hours in America, even though American-owned factories and labs have been steadily transplanted overseas, and foreign workers have contributed significantly to the final products counted in productivity measures,” they write.
According to the U.S. Labor Department, from 1980 to 2009, the productivity of the American worker increased by 40 percent.
The “grossly overstated,” productivity gains have provided free trade proponents with ammunition. Claiming productivity gains are a result of greater efficiency and technological advancements, they have hailed free trade as the reason for greater output among American workers. However, that is simply not the case.
“Above all, if offshoring has been driving much of our supposed productivity gains, then the case for complete free trade begins to erode,” they write. “If often such policies simply increase corporate profits at the expense of American workers, with no gains in true productivity, then they don’t necessarily strengthen the national economy.”
A recent research paper by the Federal Reserve found as much. It found that, as productivity continues to grow through cost containment policies – outsourcing – the unemployment rate will continue to rise.
“Anecdotal evidence suggests that efforts to contain costs and remain nimble in the face of uncertainty have become a fixture in business strategy,” the paper said. “If productivity keeps on growing at an above-average pace, then unemployment forecasts…could continue to be overly optimistic.”
The only way to fix the problem is to overhaul America’s fail trade policies and restore the nation’s once-proud manufacturing base, which is responsible for many of the nation’s technological gains and increased efficiency. To do that, America must combat currency manipulation by economic competitors and the effects of the value-added tax, utilized by over 150 of America’s trading partners, but not America.
“Manufacturing, long slighted by free-market extremists, needs to be promoted, not pushed offshore, since it has historically accounted for the bulk of research and development spending and employs the bulk of American science and technology workers — who in turn spur further innovation and real productivity,” they write.