Recession, competition restrain wages, salaries Productivity gains unrewarded in '80s

April 29, 1992|By Charles Stein | Charles Stein,Boston Globe

It was a bargain that held for 30 years: U.S. blue-collar workers produced more and in return were rewarded with higher wages.

But in the 1980s employers failed to live up to their end of the bargain.

Despite a solid 26 percent gain in manufacturing productivity, workers saw their real wages -- adjusted for inflation -- fall by 8 percent during the decade, according to a new study. Instead of boosting salaries, the productivity gains were used to keep prices low in the face of harsh international competition.

Andrew Sum, an economics professor at Northeastern University's Center for Labor Market Studies and author of the study, said the "severed link" between productivity and wages constitutes "a broken promise."

In a paper with that title, Mr. Sum wrote, "Workers have consistently been told by economists, managers, politicians and presidential candidates, including Sen. Paul Tsongas, that their real wages are dependent on their ability to produce more."

If blue-collar workers produced more, why do they have nothing to show for it in their checks?

The answer is complex. The weakness of labor unions pushed wages down. Rising prices for services, such as college tuition and medical care, ate up what meager wage increases factory workers won, in effect whittling away purchasing power.

But the critical new force today is international competition. In a world filled with hard-charging rivals, many of them from low-wage countries, U.S. manufacturers say they must hold down costs to retain market share. That translates to low prices and low wages, a combination that has reduced the standard of living for blue-collar workers.

Caterpillar Inc. is a classic example of what happened to U.S. manufacturing companies in the 1980s. And that has a lot of people wondering whether blue-collar workers will ever share in the nation's economic progress, no matter how well they perform.

For the past decade, Caterpillar has held its own against international competitors, including the Japanese. The Illinois company produces more construction equipment with a smaller work force than it did 10 years ago. Caterpillar says its productivity -- measured as output per worker -- is the highest in the industry.

But when unionized workers demanded a share of those gains last fall, the company said no. And after weathering a bitter five-month strike that captured the attention of the nation, the company is still saying no.

Management's message is clear: Business pressures require that advances in productivity be plowed back into lower prices. More money for the workers can't be spared.

The world used to work differently. In the 1950s, wage gains in manufacturing slightly exceeded gains in productivity. "In retrospect, you'd have to say that U.S. companies had a lock on the market in those days," said Sandra Shaber, an economist with the Futures Group in Washington.

Wage gains were much smaller in the 1960s and 1970s, but the 1980s was the first time real wages fell.

The 1980s were a tumultuous decade for U.S. manufacturing. Aided by a strong dollar, foreign competitors made big inroads into U.S. markets. Yet, despite well-publicized failures in such industries as automobiles and steel, U.S. manufacturing did not simply roll over and die.

Manufacturing companies, through layoffs, a decline in the value of the dollar and investments in new technology, improved their competitive posture by making major gains in productivity.

Last week the government scaled back its estimates of productivity growth for the 1980s, from an average of 2.7 percent a year to 1.9 percent. The revisions were concentrated in the computer sector.

Although not as high as Japan's 65.6 percent productivity increase for the decade, the U.S. record was consistent with the nation's performance in every decade since the 1950s.

Where did the benefits of higher productivity wind up? Not in bigger profits, said Mr. Sum. Higher taxes and bigger salaries for managers claimed a small piece of the pie. The biggest share, he argues, showed up in the form of lower prices.

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