Tuesday, May 10, 2016
Is Growth Through Productivity Increases Over?
The Great Recession resulted in one of the greatest productivity increases in American history. The trend then was to lay folks off and pass their work on to remaining employees, who simply worked longer hours for the same or lower pay. Technology efficiencies were embraced, from enhanced robotics to automated transactions, central-computer-controlled systems, analytics and processing. Retail shifted from bricks and mortar to clicks-and-then-ships.
When the stock market shed its 2008-2010 nasties, these productivity increases so lowered the cost of corporate operations that stocks began to soar. The Great Recession was huge excuse to substitute automation in the place and stead of human power. Those laid off either faded from the labor market, became entrepreneurs themselves, accepted their lower economic status within traditional employment models or, most likely, moved into the new “pay-for-piece-work” outsourced “gig” economy.
But once these massive changes were fully absorbed into the American economy, productivity stabilized. “More than 151 million Americans count themselves employed, a number that has risen sharply in the last few years. The question is this: What are they doing all day?
“Because whatever it is, it barely seems to be registering in economic output. The number of hours Americans worked rose 1.9 percent in the year ended in March. New data released [April 28th] showed that gross domestic product in the first quarter was up 1.9 percent over the previous year. Despite constant advances in software, equipment and management practices to try to make corporate America more efficient, actual economic output is merely moving in lock step with the number of hours people put in, rather than rising as it has throughout modern history.
“We could chalk that up to a statistical blip if it were a single year; productivity data are notoriously volatile. But this has been going on for some time. From 2011 through 2015, the government’s official labor productivity measure shows only 0.4 percent annual growth in output per hour of work. That’s the lowest for a five-year span since the 1977-to-1982 period, and far below the 2.3 percent average since the 1950s.” New York Times, April 28th.
For those trying to rebuild the middle class and counter income inequality, these numbers are punishing and depressing. Those who own the automation and have found the gig economy to save the cost of fringes and payroll taxes are still raking it in, but people are asking why our productivity has hit a wall.
If you have a negative view, perhaps this scenario summarizes your perspective: “The productivity slowdown is real, and it’s not going away. Earlier waves of innovation in technology (a computer on every office worker’s desk, for example) and management strategies (like outsourcing noncore functions) have been fully put into place across corporate America, and so are no longer increasing productivity.
“Add to that a slowdown in capital spending by businesses since the 2008 recession, which means workers aren’t getting better equipment or software that might help them do their jobs more efficiently. Moreover, if you believe the theory mentioned above about low-productivity workers being more likely to lose their jobs during the recession, the people returning to the labor force now may be less effective at boosting economic output for each hour they put in.” NY Times. Under this view, the average American worker isn’t likely to improve their general well-being any time soon.
But what if our measurements are inaccurate? What if the focus on hard dollar metrics simply doesn’t account for all of the likely lifestyle improvements? “After all, entire industries are being transformed in ways hard to account for in data on gross domestic product, particularly in technology and services. Having a high-powered computer in our pockets and social networks that let us stay in touch with friends may make us better off than the narrow math of gross domestic product — which counts only what we pay for — would suggest.
“Still, it’s not clear why these nonmarket gains in quality of life would be so different now than they were in earlier generations when, for example, videocassette recorders became widespread or the air became cleaner thanks to environmental regulation.” NY Times. Hey, there’s more choice in the world of digital entertainment these days!!! Netflix and Amazon are not chopped liver! And you already know my opinion of any metric based on the gross domestic product statistic. See my April 16th blog, Is the GDP Measurement Just Too Gross?
Perhaps this is just a productivity lull as business absorbs new workers, new offices and new plants. After all, it takes time to get all of these new processes online and working efficiently; they just need time to produce that craved efficiency. “There’s a recent precedent for that pattern. In the late 1990s, the stock market was booming and companies were making huge investments in staff, equipment and information technology. But reported productivity growth was actually below the long-term trend — only about 1.7 percent a year from 1993 to 1998, for example. Then it began soaring in the years that followed, particularly in the early 2000s.
“But here’s one piece of evidence that the pattern of the 1990s is not what is afoot today: Business investment spending on equipment, intellectual property and structures is low relative to the size of the economy. You’d expect those numbers to be higher if this was just a productivity lull as the economy waits for big investments in the future to pay off.
“Still, there could be enough going on below the surface of those overall numbers that the optimistic case remains plausible. To use one example, engineers at several companies are hard at work trying to perfect driverless cars. At present, they are a sap on productivity — they put in many thousands of hours of work with no economic output to show for it. But if successful, their work could radically increase the nation’s productivity in the decades ahead.
“Apply the same across a wide range of fields — industrial goods, pharmaceuticals and medicine, financial technology firms — and optimism becomes more plausible. That’s the scenario we should all hope is occurring: Slow productivity growth now is just a down payment on a much brighter future.” NY Times. In the end, we are not immune to global economic issues. We can try and counter foreign countries that can produce goods and services at lower costs than we can, but we can also provoke trade wars that create vastly worse scenarios for our average workers and consumers. We can slow our national spending down, but think of the longer-term problems if we continue to ignore our infrastructure, fail to educate our coming generations to compete globally and insist on reducing our research and development expenditures. Maybe we need to understand the difference between investing and spending.
I’m Peter Dekom, and we need to stop believing in politicians with meaningless and non-implementable slogans and focus on what has always worked in the past: investing in ourselves.