The Productivity Paradox: Some Additional Factors

Robert Kuttner lists five reasons for "The productivity paradox: Rising output, stagnant living standards" (Economic Viewpoint, Feb. 8). He overlooks an additional factor: cost burdens that restrain businesses' ability to pay higher wages. News articles recently reported that the rise in health-insurance costs to employers was a major factor for real wage growth being stagnant.

Add to that the rising costs of product-liability litigation, workers' compensation, automatic increases in payroll taxes, and regulation (whose cost will spiral--with the full impact yet to come of the 1991 Clean Air Act, the new Civil Rights Act, the Americans with Disabilities Act, the Family Leave Act, and others). It is hard to imagine how our standard of living can increase.

These costs create incentives for business to find ways to make products with fewer workers and to resist higher wages for those workers they keep. They make labor more expensive--not equipment, facilities, or raw materials.

I can't make up my mind whether to admire people who have the nerve to start a business against such odds or to consider them fools.

Lowell A. Howard

Merrill, Wis.

Your well-outlined article has blended interesting ideas about the cost and quality of technological gains and their impact on economic growth.

I'd like to point out one other aspect that has had enormous impact on all of us since the '50s--that is, the cost to businesses of complying with onerous regulations instead of using those dollars to expand their businesses (translated: economic expansion). A study by the Independent Bankers Association of America and Grant Thornton of 200 community banks revealed a cost of $3.2 billion annually to comply with just 13 specific regulations. For all banks, the cost is estimated at $11 billion annually.

Unfortunately, regulations such as the Community Reinvestment Act have little or no impact on rural areas where community banks exist, since they lend in those areas anyway.

Economic expansion could take place tomorrow if common sense could be mandated to Congress.

James D. MacPhee, President

Kalamazoo County State Bank

Schoolcraft, Mich.

Regarding your Kuttner piece: Could the cause also be the huge rise in government employment at every level, which produces nothing but paper and more government employment?

Arthur Glowka

Stamford, Conn.

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