3.3.3.1 The Link Between Productivity and Wages
If employees are more productive, employers can afford to pay them more – so there is a link between productivity and wages
Labour productivity is measured as “output per hour worked”. It has risen everywhere and has led to greater prosperity worldwide. Failure to increase productivity is a problem, as described in a House of Lords Library report for example:
“Economic growth is considered important due to the role it plays in providing jobs and improving living standards. But productivity growth, a key driver of higher living standards, has slowed in the UK since 2008.”
The report quotes Paul Krugman on the importance of productivity:
“Productivity isn’t everything, but in the long run it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker”.
America, for example, has high overall productivity. Americans can ask for higher wages than those in less developed countries, because of the link between productivity and wages.
Productivity is affected by several factors:
● Automation, better facilities, and better infrastructure, can make industry more efficient (3.2.8).
● Education and training (3.2.5) can make labour more productive.
● The regulatory burden (3.3.1) can affect productivity.
Automation has had a dramatic impact on employment. A BBC survey on workplace automation quoted estimates of it “putting as many as 1.5m jobs at risk in England” for example. Workers who are likely to be displaced by automation see it as a threat – despite its benefits in raising wages.
Artificial Intelligence (AI) is a recent major development in automation. Another BBC article, What is AI, how does it work and what can it be used for?, explains that “AI allows computers to learn and solve problems almost like a person.” The article draws attention to how big the impact is likely to be:
“A report by investment bank Goldman Sachs suggested that AI could replace the equivalent of 300 million full-time jobs across the globe.
It concluded many administrative, legal, architecture, and management roles could be affected.
But it also said AI could boost the global economy by 7%.”
Countries that invest in automation will increase the living standards of their populations, although the changes in working patterns will be disruptive – increasing the demand for retraining.
This page is intended to form part of Edition 4 of the Patterns of Power series of books. An archived copy of it is held at https://www.patternsofpower.org/edition04/3331b.htm.