About wages and productivity | Financial Times


Macroeconomic update

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Welcome back! I hope all readers of Free Lunch have had a good holiday or are enjoying the rest they deserve right now.

in my The last piece Before the break, I used my experience in conducting Covid-19 tests in different countries to illustrate my long-term theme that higher wages can drive higher productivity. A simple but powerful idea is that where wages are high, companies are more motivated to use labor more efficiently-this is as visible to Covid-tested customers as my old customers. Example of car wash.

Many readers emailed me their own productivity examples. Thank you very much for letting them continue. I use this “back to school” free lunch to share some of the exchanges I have had with you in the past few weeks.

This is Mike’s response:

“I now live in Australia, but have lived in Switzerland for 7 years. A good Swiss friend is a member of his community (Gemeinde) committee responsible for road maintenance. When he came to live with us, we drove through some heavy Paving the road, he commented on how slow it was: 4 people spent a whole day to complete the work done by one person on the outskirts of Zurich in a few hours, and went to a lower place to complete the standard.

“Another example is that Australians like to have a person-before Covid-usually a working holiday visa holder, one of the sources of cheap immigrant labor in Australia-hold a’stop/slow’ sign, rather than a temporary Lights control traffic. Unheard of in the UK for decades.”

Another reader who asked not to be named (reader, you can write to me without fear!) compared the use of security guards in Malawi and South Africa. In Malawi, every wealthy resident will have a home security, and their main specific job is actually to honk the horn to open the door. In contrast, the reader wrote that South Africa is richer and has higher wages, but its security status is unparalleled, but most people choose automatic doors and on-call security in emergencies.

Some readers also provided counterexamples. Tony mentioned the self-checkout at the supermarket:

“It’s very common in the UK. It almost doesn’t exist in Canada. Maybe they can’t be explained like your car wash example?”

My initial reaction was that Tony was right. I believe that Canada’s lack of adoption of this technology cannot be attributed to having a larger low-wage labor market than the United Kingdom.OECD data shows that Canada Higher wages on average Than the British and Income Gap Lower. In our exchanges, we want to know whether the cultural resistance to labor-saving capital will be so high that it may be too early to see the full adoption of this new technology.

But the OECD is also about “The occurrence of low wages”, Which measures the proportion of workers whose income is less than two-thirds of the median income. Facts have proved that Canada’s share is 20.7%, which is higher than the UK’s 18.1% (see figure below). So maybe this fits the general pattern after all. What do other readers think-especially those with Canadian experience?

Another thought-provoking counterexample comes from Hugh. I repeated his comments in detail:

“I made a similar observation when I drove back to the UK from continental Europe (unfortunately, two years ago). I stopped for a coffee in the highway service area and traveled all the way through Germany, Belgium and France. I had no choice but to use the self-service Coffee machine. At the first stop after exiting the British tunnel, there is a counter where a friendly barista (Central Europe, of course, before Brexit) comes to make coffee. This explains your views on different economic models.

“But there is one more point about quality. British artisanal coffee is much better than mainland machine coffee. I am very happy to exchange friendly words with baristas, but can’t talk to the boring cashiers in the mainland service area. I would also say the same about car washes: I To be sure, one of the reasons why the British team replaced mechanical car washes is that they do better: they will deal with those particularly stubborn bird droppings, and they will not break the radio antenna (they draw a vacuum inside).

“The real goal should be to use improved technology to improve quality and efficiency. The barista makes good coffee and has time to talk because she has a sophisticated espresso machine (not just a kettle). The car washer does a great job. Good, and attention to detail, because they have high-pressure hoses (not just rags). This is undoubtedly the best of the two models.”

Hugh’s view on quality is very correct. I think it is very illuminating to consider productivity from a quality point of view. However, while higher-quality services are generally more labor-intensive, more labor-intensive services are not necessarily of higher quality.

As Hugh points out, quality requires capital investment (espresso machine, high-pressure hose). Moreover, the workforce must generally be skilled—in a broad sense, it includes social and language skills for dealing with customers, as well as skills in a narrow sense. Real top coffee requires considerable training and knowledge: about the brewing process, the operation of complex machines, and the origin and flavor of coffee shared with customers. This also requires investment-in training-and will require higher wages to provide more expensive services. The situation before Brexit is a bit special, because wages can be paid based on the odds of highly qualified labor for the time being. In my impressions, local highly skilled baristas are few and far apart—and they are more likely to appear in the wealthiest areas where they can pay.

A similar point can be made for cleaning very expensive cars-car owners will not let any random car wash workers mess them up with high-pressure hoses or vacuum cleaners at will! For example, this requires knowledge about how to clean expensive materials.

But as Hugh said, the focus on quality implies that high-income economies can play a productive role for everyone and rebuild what I like to call Ownership economy. This is my final comment on Hugh:

“That said, quality must be the goal that rich countries should pursue. From a commoditized service with price competition to a customized, high-quality service with a pleasant experience. This requires the cultural willingness to spend on quality, sufficient and extensive sharing The purchasing power of each person, and the ability of each person to develop relevant skills and knowledge. In order to simplify a little, every waiter is turned into a winemaker.”

I would love to hear what the readers think.Finally, I introduced you to my column this week, I think Class conflict is back, The workers seem to have the upper hand. Assuming that higher-quality work is more rewarding, will the ever-changing balance of power in the labor market itself become a quality driver because of workers’ desire for meaningful tasks?

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