Will she get paid more?

No-one’s bitten yet, Steve, so i’ll give it a crack.

The answer (which is the same to almost all economics-related questions) is “It depends…”

If the cleaner is now performing their job using a ‘wonder clean 5000′ (I’m assuing it’s some kind of machine or capital investment) then it’s unlikely she’ll get a payrise. If she does, it’s probably not going to be much.
Why? Because the improvement to productivity has come from a capital investment, requiring expenditure on the part of the company, and foregone opportunity cost of what that cash (or new debt) might otherwise have gone into. So, the benefits will go to the capital(ist).

On the other hand, the cleaner gets some kind of training, or goes on a course, or just through experience on the job picks up productivity ‘via osmosis’. Where does the new profit go?
Again, it depends. If the company sponsored/payed the employee to go on a course, it’s the one taking the financial risk (if the course isn’t any good, and the cleaner doesn’t learn anything new, does she care? did she pay for it? No skin of her nose) so should again, logically, get the primary benefit of the reward.

On the other hand, lets say the productivity increase comes from the cleaners own skills and experience. What then?
In this case, the cleaner has a strong case for recieving the bulk of the financial reward. In effect, she is now offering a differentiated product to labour market ‘buyers’.

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You also mention Labour productivity growth in the 1990′s. Remember than post-84, the financial markets opened up, and it became easier for companies to borrow. This made it an awful lot easier to fund capital investment – an important input into productivity gains. At the same time advancements in IT became marketable to SME’s for the first time. These things are going to push up labour productivity, and the risk/expenditure is all on the capital side.

Relative success in education can be due to a load of variables that are not as easily managed, or even identified, as on the factory floor. In schools one class may have a lot of students, who have parents who didn’t succeed very well at school, and who can’t support them well at school. It may have many students with anti-school behaviours, who are disruptive in the classroom, or some with learning disabilities. And this all before a specific teacher takes iover the class. How do you compare that teacher’s results with that of a teacher of a class of students who are largely well-behaved/school conformist, and have aready achieved quite a lot academically?

Teachers also have to conform to a school ethos and procedures. If the school systems are at fault, this could distort results of “good” compared with “bad” teachers.

But even on the factory floor, I would have thought team work was as important as individual performance. Performance pay assumes that an individual’s work performance is totally down to them, and can’t easily take into account how a team operates together within agiven system. In fact, by giving incentives to individuals, it could work against achieving good team-work and/or improving the system.

People do need to be more proactive with their employment and if they don’t like what they are experiencing they should look at their options – this is something that generation Y understands quite well.

Bill one point I would make regarding management is often they are in a situation where they have limited ability to implement effective change this is in particularly true of government run organisations.

Sure. Leave the job. Get another the same afternoon? Transfer accrued benefits (sick leave , redundancy)? Management what? Oh, that’s right….carry on the same old, same old.

G’night.

Oh and you write such godawful poetry too.

I worked a factory floor. And I’m a wee bit smart. So I figured out how my department could up output by 50%: cut material waste by between 80-90% in a way that us workers worked less. This amounted to many thousands of dollars.

It was demonstrated to management. It was a working proposition. What happened? Management jumped all over it, me and my workmate….refused to adopt the proposed production techniques and wound up making abut 20 workers redundant.

Then another 20 the following year.

Then shut down production and shipped it Australia….higher wages impacting on productivity because? Well my conclusion is obvious. Management in NZ is full of drop kicks who protect their own incompetence by promoting underlings who are even more stupid and unimaginative than themselves and stomping on anything and everything that might unmask them.

BTW. Not the only example I could outline, just the most obvious.

Steve P – A cleaner should be paid more for being more productive and cleaning more offices – but this is against everything labour and the unions stand for. I can guarantee if national suggests that a group of people get paid based on their performance in the public sector ie teachers getting more fo improving their classes average or lab staff having fewer errors and higher throughput – the unions would cry about how it is unfair, how it is discriminating etc etc.

No. An increase in productivity shifts the supply curve right in the goods market – implying an increase in activity and a reduction in prices.

Wages won’t fall (as the marginal product of a worker is higher) – but unit labour costs will, as you need less labour to make a “unit”

“An increase in productivity should result in deflation”

Yes – if the quantity of money is unchanged.

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Note that no-one ever said that an increase in productivity increase employment – we said that it increase the wage earned by a worker. The change in employment depends intrinsically on how the shape of the production function moves as the economy expands (for the mathematically inclined, I vaguely recall that we are looking for a homothetic production function if we want the composition of labour and capital to remain the same).

In the market overall, an increase in productivity increases the SUPPLY of goods – we can now make things with LESS inputs, that is what is so awesome about productivity growth. Now the distribution of these gains depends on the policy framework we have in place and, if you believe policy can influence productivity, the policies you implement to undertake this.

However, I cannot imagine an exogenous increase in productivity that reduces real wages – it makes no sense to me.

1.) The price drops increasing demand for the extra production. This will only happen if the decrease in price results in greater profit. This may lead to an increase in wages if, and only if, the employer is feeling generous as he has no incentive to increase wages.
2.) The price remains the same, demand remains the same so the only thing that can happen is that the wage bill goes down

An increase in productivity should result in deflation. If wages stayed the same then there would be an effective wage increase similar to inflation being an effective wage decrease. Of course – the government and businesses will try to prevent deflation as it will result in a deflationary spiral. A major problem with our accounting/economic system is that $100 != $100.

What the hell is the point of a “productivity commission’ – sounds like pork to me.

It is but I don’t know why anyone would be surprised at that – it’s what right-wing governments specialise in.