This post first appeared on June 23, 2007

A neat little analysis by Ross Eisenbrey at the Economic Policy Institute may be difficult for union foes to explain away. It shows the proportion of workers covered by collective bargaining agreements in major European countries and the US and then shows productivity growth country by country in the same group 1979-2005. Despite being the only nation in the bunch with low union representation, US productivity growth is merely middle-of-the-pack.

Now one can quibble slightly with Eisenbrey’s presentation. Rather than showing 2005 union representation, it would have been cleaner to show the average over the 1979-2005 period (for example, during this time frame, US union membership dropped from 27% to 12% today. It makes for a better comparison and in no way changes the outcome).

In fact, the dirty secret of this exercise is that, were GDP of the US computed on the same basis as in European countries included in this comparison, the US would almost certainly show lower productivity gains than any other nation in this group. The reason is that, in 1980, the US started adjusting its GDP figures to allow for the fact that computer and communications technology were becoming more powerful (i.e., even though buyers were paying less, they were getting considerably more utility). No other country makes these so-called adjustments, using a hedonic price index. And the cumulative distortion is massive. In 2005, economist/investment advisor Michael Shedlock contacted the Bureau of Economic Advisers and they supplied some dated information on hedonics (including a spreadsheet). He found that hedonic adjustment to GDP was 2.257 TRILLION dollars, or 22% of then-current GDP.

Productivity is output per unit of labor. To determine productivity of an entire economy, the numerator in the calculation is generally GDP. So if we are alone among our peers in having an inflated GDP, that says were it computed on a comparable basis, our lower GDP would also result in lower productivity growth. And since Shedlock’s work indicated that our GDP is wildly overstated, so too is our productivity growth.

Maybe more unions are just the thing we need……

From the Economic Policy Institute: