Wallstreet Journal Opion

Closing the Productivity and Pay Gap Closing the Productivity and Pay Gap By William A. Galston Your editorial “Closing the Productivity and Pay Gap” (Politics and Ideas, Feb.19) addresses an invalid, but widespread, belief that wages should follow productivity gains in a particular firm or industry. Mr. Galston argues that industries have to share their productivity gains with employees or contribute to public programs instead. He challenges that the problem in our economy is not shortage of capital but weakness of demand, and therefore it is important for worker’s compensation to grow alongside a firm’s productivity. However, the facts he uses especially the Bureau of Labor Statistics report fail to support his argument.
Mr. Galston refers to the BLS report but forgets to consider that the measures stated in the report do not measure the specific contribution of capital, labor, or any other factor of production but do reflect changes in technology, capital investment, managerial skills, effort of workforce, level of output and material. Moreover, he fails to explain role of workers to share losses and stresses of ownership in relation to sharing of productivity gains. Firms already share gains from increased productivity with their shareholders and for those workers who desire for the surplus value has to purchase the company’s stock.
The implementation and enforcement of a productivity-to-pay method would draw a number of implications such as diverse effects on capital investment and hiring, and avoidance of tax penalties by businesses. Furthermore, the challenge in our economy is neither shortage of capital nor weakness of demand but an environment full of regulations and laws that tend to discourage investment. Thus, the argument by Galston is not only erroneous but also impractical in any economy.
Galston, A., W. (2014). Closing the Productivity and Pay Gap. Retrieved on 4th Feb 2014 at
` http://online.wsj.com/news/articles/SB10001424052702303945704579391070814416410