Hillary Clinton Uses Misleading Productivity Chart In Part-Time Debate

July 11, 2015 2 Comments

I already knew this would happen on day, so it’s not a surprise why I am writing about this again.

You might have seen this chart somewhere before:

I wrote about on one of my length economic blog post, which features the exact same chart I used in my example. Now, somehow, Hillary Clinton (D-NY) has gotten a hold of his chart and she is using it as against Presidential Candidate Jeb Bush (R-FL), as criticism for his proposal for Americans to work longer.

From ABC News:

Bush: “My aspiration for the country and I believe we can achieve it, is 4 percent growth as far as the eye can see. Which means we have to be a lot more productive, workforce participation has to rise from its all-time modern lows. It means that people need to work longer hours” and, through their productivity, gain more income for their families. That’s the only way we’re going to get out of this rut that we’re in.”

The largest problem with this regarding Hillary is that she doesn’t understand what the data she is using represents (or even means). Also, unfortunately for her, Jeb Bush isn’t wrong about American’s needing to work longer.

As explained before, the problem with the chart Hillary used is that it only compares total productivity with hourly wages (most likely Average Hourly Earnings), which is a misleading comparison to make. Average Hourly Earnings measures the typical scheduled hourly wages plus legally required benefits. It doesn’t include variable, which is compensation that is tied to the performance of the individual employee or business’s overall performance (cash awards, profit sharing, stock options, etc.). AHE also excludes compensation such as overtime, bonuses, shift premiums, and employer benefits.

Consider wages have become smaller share of personal income, a more accurate comparison to productivity growth would be total compensation.

So this

actually turns to this:

You can still see that productivity has outpaced real compensation, however, the gap is much smaller than one would anticipate. From there, we can attribute the acceleration change in productivity to technological changes, as well as the financialization of our economic, shifting towards more complex financial products.

As this pertains to Bush’s comments on the need for workers to work longer hours, it relates to one of the basic premises of productivity. Productivity is the ratio of inputs (workers) to outputs (economic growth), relative to how long it takes each input to create an output (hours worked). If you want the economy to grow faster, firms need either 1) more employees or 2) employees working longer hours.

The only problem with option number one is that it’s just not happening. This is a chart I’ve used often and something Clinton has probably never seen.

Recently, Unit Labor Cost (the relationship between productivity and wages) have increased by the largest amount since the recovery. Normally, an increase in ULC means employee compensation have outpaced productivity. In this particular case, it not only means compensation has outpaced output, but output has declined, for two straight financial quarters.

What could solve this problem? Bush believes a number of factors can address the rut we are experiencing in the economy.

Low Wage Work:

We’ve seen a significant pick up in employment, which should be good for overall economic output. However, the economic output would depend on the types of jobs being created. If you have more highly productive jobs being created, it should result in higher economic growth. If the opposite is true, you will see a stagnation in productivity growth, as well as economic output.

According to a National Employment Law Product study, 44% of all of the job gains in this economic recovery originated from low-wage industries:

This would explain why AHE have been stagnant for majority of this recovery. The idea behind AHE is its ability to track wage growth, relative to the growth of all employees. When AHE grows, this means more jobs are being created in mid-wage/high-wage industries and people are leaving lower wage jobs to take advantage of higher paying work.

When AHE are stagnant, like they are now, this means that workers are taking jobs at whatever work they can get. Despite creating a record number of jobs, AHE cannot seem to break the 2.2% average threshold.

Abnormally High Involuntary Part-Time Work:

Average weekly hours worked dropped as low as 33.7 during the recession. Since then, workers have recovered those hours at 34.5. Despite recovering those hours, the level of people stuck in part-time work is abnormally high. This means they usually work 34 hours or less, and are reading to work more hours, so long as their employers allow them to or they find a full-time job.

When you look at production and nonsupervisory workers, average weekly hours is 33.6, a full hour less than 34.5.

One way we can explain the slow growth in employee hours is the job growth in industries such as retail, leisure & hospitality, and temporary work. These jobs can average hours from 33 hours to as low as 25 hours. The fact that they work less hours puts a strain on their income.

In another case, there are millions of workers are do in fact work long hours. Many of these workers go unpaid, in this case, Hillary Clinton has a case. However, her retort to Bush’s claim is an erroneous representation of the facts.

The facts are that there are still millions of workers who do need to work longer hours. There are millions of workers who would like to work longer hours. We also do have a productivity squeeze in the labor market, and its placing downward pressure on wages, as well as economic growth.

Hillary Clinton is no stranger to engaging in rhetoric to prove her point, and she needs ever single point she could get to invalidate the claims that this economic ‘recovery’ is anything but. For her sake, and Obama’s.

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