Improving workers' productivity increases their value in the labor market. It is the main mechanism by which they are able to command higher wages and improve their well being...it will be very hard for incomes to rise without increases in productivity.Alas, we've been trying to improve worker productivity for a long time, as the costs of human capital investment now attest. Yet human capital investment costs fly in the face of sluggish wage realities. What is the real underlying issue?
Since wages have scarcely risen for decades, it helps to remember why wages were able to rise for so long. Wages rose because output was steadily rising, in relation to other production factors. It's difficult to stress this enough, especially given the level of today's ongoing human capital investment.
There's further rationale for sluggish wages besides a diminished long term growth trajectory. The dominance of today's non tradable sectors are nonetheless dependent on other revenue streams. This is why - instead of being an active contributor to additional growth - these areas maintain a relatively stationary level of output.
Whereas formerly, when tradable sector activity was dominant in developed nations, increased output meant new growth, increased profits and rising wages for a larger percentage of the workforce. In recent centuries, this form of organizational capacity proved a reliable route to rising wages. As time based service sectors gradually expanded in relation to the earlier structure, productivity in terms of potential output, fell at the same time.
What is important, however, is not that high skill (or other) time based services are "unproductive". Rather, they are productive in ways which - while still valuable wealth contributors - don't readily translate into higher wages for more than a limited segment of any population. Consequently, time based services generation would greatly benefit from a new understanding of productivity. Labour abundance and its associated lower wages is something to be reckoned with for the foreseeable future. Hence it's time for a new institution: one capable of turning this unforeseen event towards a broader societal gain.
How might such an institution respond? Imagine a local and decentralized equilibrium, in which the initial product on offer is time based services. These services would generate new wealth, as each individual purchases time units on offer from others. Each matched set of time value would serve as paid "mini loans", to generate active use of knowledge, skill and other focused endeavour. Each set would be backed by asset value and a "safety net" framework of mutually desired activity.
In this setting, the nominal representation of wealth is relative, as contrast with the output that is sought. Even though one's time value might be compared to a small wage, an entire basket of services provides matching possibilities for one's own skills capacity. This time based output could prove quantifiable and easier to account for, than the asymmetrically compensated skills sets which are often buried deep within other institutional functions. And since technology is integral to the process, previous worries about wide variations in skills, would be easier to address.
For tradable sector activity, productivity is a result of output gains from the gradual reduction of labour hours. Even though the time arbitrage described above is a stationary level of time (or labour) output, the gains accrue in terms of time quality and group costs for services which otherwise require the additional factor of extensive human capital investment. In time arbitrage, the investment process accrues gradually, with each individual an active part of skills building and knowledge utilization.
Best: more service product would eventually become available for less cost, than what is presently necessary to achieve a productive outcome. What's different is how the organizational capacity arrives at this result. Lower costs for time based service formation, allow an altogether unique level of nominal income and asset formation, from what is often expected in general equilibrium conditions.
To sum up: output for time based product is a fixed quantity, which makes it different from the often capital intensive structures which so contributed to productivity in the past. Human capital of all kinds exists at an internal level, which has yet to be fully acknowledged in the marketplace. Today's changing output structure need not be a threat, if this new pattern can be harnessed so as to eventually bring the costs of knowledge use within the reach of entire populations. Just as tradable sectors continue to bring a wide variety of goods within the reach of small incomes, the same could also be accomplished for services. A new way to envision service productivity, could more than compensate for a future which includes the lower wages of abundant labour.
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