Tuesday, September 04, 2007

Apples and Oranges

In the wake of a recently released International Labor Organization report on world productivity and labor statistics, two articles appeared with decidedly different interpretations of the findings.

Geoff Colvin of Fortune says Americans are working less while charging more and eventually will be outpaced by the growing twin specters of China and India. However, the AP's article instead states not only are we working harder but smarter -- and I found it to be right on the money.

The Fortune article starts thusly:

We Americans pride ourselves on being a hard-working bunch, so here's a thought to spoil your Labor Day rest: By global standards, we're lazy. We've been getting lazier. And the days of the American dolce vita may be numbered.

The surprising report of our relative sloth arrives in new research from the UN's International Labor Organization, which looks at working hours around the world. When it comes to what we might call hard work, meaning the proportion of workers who put in more than 48 hours a week, America is near the bottom of the heap. About 18% of our employed people work that much.
Contrast that with the AP report, which states:
American workers stay longer in the office, at the factory or on the farm than their counterparts in Europe and most other rich nations, and they produce more per person over the year.

They also get more done per hour than everyone but the Norwegians, according to a U.N. report released Monday, which said the United States "leads the world in labor productivity."

The average U.S. worker produces $63,885 of wealth per year, more than their counterparts in all other countries.
So what gives?

Colvin's article references some anonymous study performed by the University of Chicago which I can't find. I did, however, read the International Labor Organization's report, and found it to be about as unalarming as can be.

Not only do we work more than other developed nations, but the American worker also creates more wealth per hour worked than every country but Norway, and we shatter their aspirations of first place productivity by working far more hours.

Our massive creation of wealth can't be totally written off as a result of more technical labor, either. We destroy the competition in each singular field of labor as well. For example, an American farm worker creates almost 58 times the annual wealth of his Chinese counterpart. A Chinese industrial worker produces $12,642 in wealth per year, which is absolutely demolished by the American figure of $104,606.

And the ILO report states that the productivity gap between the United States and poorer nations is widening.

This stands in sharp contrast to the crux of Colvin's article, where he says

Americans and others in developed economies are selling the world's most expensive labor. In a global market, some of those prices -- our pay -- will have to stop rising and maybe even come down, while pay in China, India, and elsewhere goes up.

Now I don't particularly want to argue with the Senior Editor-in-chief of Fortune, but I can't help but scoff at this. At best he's sorely misrepresented his argument; at worst, he's flat out wrong.

The difference lies not in the price of labor per hour but the type of labor being performed. This relates marvelously with the laws of thermodynamics, which tell us that energy has not only quantity (first law) but quality (second law).

Similarly, you can't find labor to produce what Americans will in other countries, and it has nothing to do with the price per hour. It's a case of apples to oranges, and I think Colvin knows it. The disparity between the amount of time to create wealth in a nation based on agriculture compared to that of one based on technology renders any comparison completely null and void.

The ILO report's executive summary makes this lucidly clear:
The majority of workers in most developed economies are engaged in wage and salaried employment. In contrast, the majority in the developing economies of sub-Saharan Africa and South Asia continue to work as own account workers and contributing family workers.
In recent years agriculture has lost its place as the main sector of employment and has been replaced by the service sector, which in 2006 constituted 42.0 per cent of world employment compared to 36.1 per cent for agriculture
Agriculture is still the main employer in the poorest regions in the world. In sub-Saharan Africa, almost [70 percent] employed, work in this sector; in South Asia and South-East Asia & the Pacific it is almost [50 percent].
By contrast, only approximately 7 percent work in the agriculture industry in the US (21 million). The apples-to-oranges comparison becomes even more ridiculous when the cost of living in terms of food is considered: Americans, on average, spend 9.3 percent of their income on food. India spends 53.1 percent, Venezuela spends 34.3 percent, Italy spends 25.7 percent, Japan spends 19.1 percent, France spends 16.3 percent and the United Kingdom spends 11.5 percent.

Even if the productivity gap was neutralized, Americans would still be far wealthier than citizens of other nations. The "dolce vita" isn't going away any time soon.

And it's not only that Americans are doing different kinds of work. American laborers are more innovative, smarter, more competitive and just downright better than their counterparts overseas for a variety of reasons which are a study all by themselves (freedom, ability to own property, etc). What it comes down to is that Americans essentially demand higher pay for a higher quality product, something which the market understands and agrees with.

It may be true that the bulk of Americans may not be working in excess of 48 hours a week. As Colvin says, only 18% of us are workaholics enough to do that. But the vast majority of Americans (right at 80%) work the traditional full time 40 hour work week, which is actually up from a decade ago.

At this point, I'm not even sure that Geoff Colvin read the ILO report.

Finally, an interesting point is revealed when the methodology of the ILO's report is considered. They rely heavily on individual country's labor statistic offices and surveying of individual workers to report the time they spend working. What, then, constitutes work? Colvin suggests we're working less around the house as well as in the office (and links it to the rise of obesity). He also reports that Americans have more leisure time.

But is it really true?

With the rise of the work-related email address and the ever-present Blackberry, many Americans simply never stop working, whether on vacation or relaxing after 5 pm. And yet most, I believe, would not record this time as work hours when surveyed.

Again, its apples to oranges. As little as ten years ago a person was incommunicado as soon as they were on vacation -- and their work just got on without them. But, clearly, Americans still take vacation, and still count this time as "leisure" hours, whether they get a little work done or not.

I don't think the PDA craze has caught on in India just yet.

The point is pretty clear: Americans are still hard workers and are still providing not only more quantity but more quality than workers of other nations.

No matter what Geoff Colvin wants you to believe.


Anonymous said...

Great post - I am going to send the link to Colvin

Anonymous said...

Yup, I still declare it a vacation day even though I check work email and return phone calls.