TCS Daily


'These Staff Reductions Are Due, In Part, to Our Productivity Initiatives'

By Jerry Bowyer - September 1, 2006 12:00 AM

The median hourly wage for American workers has declined 2 percent since 2003, after factoring in inflation. The drop has been especially notable, economists say, because productivity -- the amount that an average worker produces in an hour and the basic wellspring of a nation's living standard -- has risen steadily over the same period.
-- "Real Wages Fail to Match a Rise in Productivity" by Steven Greenhouse and David Leonhardt, The New York Times, August 28th, 2006

We decreased the size of our workforce, beginning last summer, by approximately 200 positions. In September, we announced the elimination of another 500 positions ...These staff reductions are due, in part, to our productivity initiatives.
-- New York Times Company, 2005 Annual Report, New York Times Company

"Real Wages Fail to Match a Rise in Productivity" by Steven Greenhouse and David Leonhardt is one of those big idea pieces that bounces around the blogosphere and local editorial pages. Already furrowed brows are furrowed even more deeply at the revelation that wages and salaries hadn't kept pace with productivity gains.

Greenhouse and Leonhardt write:

"With the economy beginning to slow, the current expansion has a chance to become the first sustained period of economic growth since World War II that fails to offer a prolonged increase in real wages for most workers."

One wonders why so much attention should by paid to so few statistics. For example, wages and salaries stats don't include commissions, consulting fees, performance bonuses, rent, interest payments, dividends, proprietors' income, health insurance benefits or any form of transfer payments.

A broad-based measure like Personal Income, which does include these things, is a more helpful statistic. But the problem is that Personal Income has risen over 7% in the last year alone. What's more, income tax receipts have shown even faster growth.

The Times reporters write:

"The median hourly wage for American workers has declined 2 percent since 2003, after factoring in inflation. The drop has been especially notable, economists say, because productivity -- the amount that an average worker produces in an hour and the basic wellspring of a nation's living standard -- has risen steadily over the same period."

What about inflation? There are several measures of it: CPI, Core-CPI, PPI, Core-PPI Implicit Price Deflator, PCE Deflator, etc. Why use only one? Why use the one that shows the highest levels of inflation and which -- at the same time -- is roundly considered by the profession to overstate inflation?

The reporters further write:

"...global trade, immigration, layoffs, and technology -- as well as the insecurity caused by them -- appear to have eroded workers' bargaining power. Trade unions are much weaker than they once were..."

Weren't there technology and immigration and global trade in the 1980s and 1990s? The Times treats the 1990s as a kind of golden age of prosperity for all, but all of that prosperity occurred after Bill Clinton placed his signature on the North American Free Trade Agreement (NAFTA). Private sector unionization in the 1990s continued to decline, as it had in the 1980s.

Given the Times' interest in this subject, I wondered if high levels of union membership among New York Times Company employees helped them to get their fair share of productivity gains. To find out, I looked at the firm's most recent (2005) Annual Report.

"Our process mapping and productivity gains are expected to lead to annual savings related to our staff reduction programs....We decreased the size of our workforce, beginning last summer, by approximately 200 positions. In September, we announced the elimination of another 500 positions, which will be substantially completed by the end of the first quarter of 2006. At the beginning of 2001, we had approximately 13,800 employees and we expect to be at about 11,400, down 17%, excluding acquisitions and divestitures, by year-end.

"These staff reductions are due, in part, to our productivity initiatives. Other factors include our ability to leverage the investments that we had."

I don't know about you, but I think that one deserves a Pulitzer for exposing corporate greed at the expense of workers.

What if we measured the virtue of the New York Times Company and the prosperity of their employees by the same standards that they used to evaluate the rest of American business? As Leonhardt and Greenhouse wrote:

"In the first quarter of 2006, wages and salaries represented 45 percent of gross domestic product, down from almost 50 percent in the first quarter of 2001 and a record 53.6 percent in the first quarter of 1970...But in recent years, the productivity gains have continued while the pay increases have not kept up. Worker productivity rose 16.6 percent from 2000 to 2005, while total compensation for the median worker rose 7.2 percent..."



The chart above does to the New York Times Company what it did to all the other companies. It displays the data that show whether wages and benefits are growing or flat. It reveals whether worker's compensation is keeping pace with growth in output, or even (for that matter) with inflation. Since employees of the company are roughly five times more unionized than employees of other American companies, it also sheds light on whether trade unions are the answer to lagging earnings. Is it fair to judge this particular company for the fact that its workers only receive a little more than one-third of the total output of the company? It is -- when they condemn the rest of them for paying out only about half.

Jerry Bowyer is an economic advisor for Independent Portfolio Partners.

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