Views from a Management Guru

At 94, Peter Drucker still views things(reg. requried) differently than everyone else. His take on wages in the U.S. –

Wage cost is of primary importance today for very few industries, namely ones where labor costs account for more than 20% of the total cost of the product—like textiles. I don't know what proportion of the cost of a typical American product is attributable to labor, but it's a small and shrinking one. Take automobile parts. Because of my consulting, I happen to know the internal cost structure for one of the world's biggest auto parts makers. They tell me that it is still very much cheaper to produce in this country—or maybe in conjunction with a maquilladora plant along the Texas-Mexico border—than to import, because the parts, while labor-intensive, are also very skill-intensive to design and make. When that's the case, you're still better off producing in this country. So the belief that labor costs are a main reason for producing outside the U.S. is justified for only a very small segment of industry.

Consequently, the industries that are moving jobs out of the U.S. are the more backward industries. The U.S. remains the cheapest place in the world to produce for many of the more advanced industries. I say that not because our wages and salaries are so low. They aren't. But employee benefits are much cheaper than in Europe, and American workers are more flexible. I don't just mean you can move people out of accounting and into engineering here; I mean physically moving people from Chicago to Los Angeles. Don't you dare try that in Germany. They won't go. That's one of the absurd byproducts of their huge and restrictive employee benefits: It's cheaper to allow someone to remain unemployed in the Ruhr than to move him to Stuttgart for a real job. The same thing is true in Japan.

So what I call "invisible" costs are quickly beginning to be more significant than direct labor costs. These are pension costs, benefits and health-care costs, and especially something nobody has yet assessed, which I call "reporting" costs, which are basically associated with complying with regulations, taxation, labor relations requirements, and the like.

And then there is this gem, which, as a white collar worker, I know is true.

Nobody has really looked at productivity in white-collar work in a scientific way. But whenever we do look at it, it is grotesquely unproductive. As you know, most of my work these days is with universities and hospitals and churches, which are three of the biggest knowledge-worker employers, and their productivity is dismal. In part this is because knowledge work by definition is highly specialized, and that means that the utilization of the knowledge worker tends to be very low.

My company is trying to measure white collar productivity by having use labor codes for certain types of work on our timesheets. I don't think they are going about it the right way. Many people will disagree with this, but I think outsourcing some "low end" white collar work will actually help U.S. knowledge workers become more productive.

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