Measuring the White Collar

Why have costs gone up so fast, and why does industry find it so hard to cut them? Last week Federal Reserve Economist Murray Wernick gave as his reason the fact that industry has exaggerated the gains in productivity credited to production-line workers. These so-called gains form the basis for wage boosts, and also lead industry to exaggerate the wages it can give without increasing costs.

The reason for this disparity, says Wernick, is the vast increase in so-called "nonproduction" workers, which corporations often fail to take into account. Between 1947 and 1957, nonproduction workers increased by 1,400,000, or 55%, v. only a 125,000, or 1%, increase in production-line workers. Salary payments jumped even faster (see chart).

What caused the sudden rise is the research explosion that started in 1947, and continues today. Companies hired so many scientists, technicians and other professional workers to plan, develop and help produce new products that in some industries, such as aircraft and electronics, 30% or more of all workers are now technically classed as nonproduction employees. The automation that has led to a reduction in production workers has also brought an expanded need for engineers, technicians, clerks, personnel experts.

Yet no one knows how to gauge the productivity of such workers--or how much money they should get. On the standard measures, it often appears that white-collar employees drag productivity down. If only production-line workers are counted, productivity increased at an annual rate of 3.7% since 1947; if all workers are counted, the gain drops to 2.9%. Actually, says Wernick, the reverse may be true, since technical experts often make possible productivity increases. Moreover, how can industry measure the work of scientists who design a new machine or a new product that does not show up in the output figures for months?

For the immediate future, the big increase in white-collar workers saddles industry with high fixed costs that reduce corporate flexibility. The payoff, says Wernick, will come in the future: "Industry hired its salaried professionals to keep pace with technology, to cut future cost and increase productivity. For the long term, such workers give industry a solid investment base to reduce future costs as it produces future products. It will be able to pick up very rapidly without increasing costs much."

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