>I'm also skeptical of the higher wages equals higher productivity argument,
>even at the administrative, technical and professional levels. For one
>thing, unlike the goods-producing sector, it's almost impossible to measure
>productivity among so-called "cognitive" or knowledge workers. When I was
>negotiating collective agreements in the public service, we used to use 2%
>as a proxy for "improved productivity" - one of the elements, along with
>inflation, catch-up, and external and internal pay comparisons, we'd use in
>"justifying" a wage proposal to our members and management. It was the
>hardest number to support because it largely floated on air.
In one of his more recent productivity papers, Robert Gordon quotes a colleague (can't remember who) on what he calls "the 2% solution." Over the last 100 years or so, U.S. productivity growth has averaged 2% a year - sometimes higher, sometimes lower, but oscillating around that central tendency. So when making long-term assumptions, 2% is safe.
Doug