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Will Higher Pay for Uber Drivers Increase Productivity Growth?

That’s what Sarah Jeong says in a New York Times column. The piece argues that if Uber drivers got a living wage then Uber would just turn to using driverless cars.

It is an interesting possibility. The argument is that higher pay is a major driver of productivity growth, as it forces companies to use workers more efficiently and to invest in labor saving equipment. Many progressive economists have long made this argument, although it is rejected within the mainstream of the economics profession.

It is possible that we are seeing some evidence of this story in recent productivity data, which show productivity had risen 2.4 percent over the last year. While this is still far below the 3.0 percent growth rate of the long Golden Age from 1947 to 1973 (and again from 1995 to 2005), it is a big improvement over the 1.3 percent rate from 2005 to 2017.

If this increase proves to be real (productivity data are highly erratic) it will primarily be a story of employers being forced to use workers more efficiently in a tight labor market with 3.6 percent unemployment.

Investment was not especially strong in 2018, so there was no mass displacement of workers by capital.

Anyhow, if we can continue to pursue high employment policies and use higher minimum wages and other measures to sustain wage growth, we may see a more rapid pace of productivity growth going forward, with workers reaping benefits in the form of more rapidly rising wages.

This column first appeared on Dean Baker’s blog.

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Dean Baker is the senior economist at the Center for Economic and Policy Research in Washington, DC. 

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