She quotes from a Bloomberg article that shows productivity dropping to a level that is downright infinitesimal:
"Bloomberg reported that productivity gains in the US are tepid, and that’s a sign of economic weakness:
Four years into an expansion, the productivity of American workers has slowed and some economists say there are few signs it will soon rebound.
Employee output per hour grew at an average 0.7 percent annual rate over the past 12 quarters, which economists at JPMorgan Chase & Co. say is a pace so slow it’s rarely seen outside of recessions. Gains since the recovery began in June 2009 have averaged 1.5 percent, the weakest of the nine postwar expansions that lasted as long, according to IHS Global Insight.
http://www.nakedcapitalism.com/2013/05/are-flagging-productivity-gains-a-sign-of-a-played-out-economy.html
Obviously, a source for some concern as the title of her post asks is this a sign of a flagging economy? Yet, I can't help notice how differently stuff plays at Naked Capitalism than it might do elsewhere. She has to convince readers that this is actually a source of concern:
"This is more significant than readers might realize. The two sources of growth are demographic growth (more people) and productivity gains. Every time the topic of growth arises, some readers argue that we can’t afford more growth because it implies more resource consumption. But productivity-driven growth does not have that character. It means your are producing the same goods and services with less labor input. So if you replace your receptionist with a phone prompt system, you don’t have to have as much office space, you can get rid of the electricity and equipment once used to support him, the receptionist does not consume gas going to and from work, and so on. So, generally speaking, you reduce resource demands.
Some readers then actually think that a drop in productivity is a good thing-after all, less resource consumption. Yet these same folks bemoan the slow pass of the recovery. So if we stay in a slow growing economy there will be less resource consumption! So is bad-economic-news good news for the environment? Yves, herself, is kind of doing the same thing herself with her attempt at reassurance: productivity means less resource consumption. Really-so more growth is less consumption? Yet aren't we supposed to be Keynesians? Keynesianism wants more consumption-no?
And how is this lower consumption-pace Yves-actually achieved? By downsizing or cutting back on workers or worker hours and have those remaining do twice the work previously while letting others go and not hiring new ones. Yet she also decries this practice:
"It also can’t be stressed enough that the unprecedentedly high corporate profits we’ve seen are the direct result of businesses hogging the benefit of productivity gains for themselves. Warren Buffett famously warned in 1999 that a corporate profit share of GDP of over 6% wasn’t sustainable. Analysts now peg the corporate share at anywhere from 11% to 14%."
So productivity is good as it leads to less resource consumption, but it's bad in that it leads to downsizing and putting all the work on the remaining employees. She does make an important point about productivity gains-these issues really are double-edged:
"Now the Bloomberg piece argues that the reason that productivity gains are flagging is because
employers don’t see opportunities to deploy technology to improve output. But the reality is more complicated."
"One of the big drivers of productivity gains has simply been making workers do more for the same pay. The evidence is pervasive. You see it in Walmart cutting staffing to the level where lines in stores and inability to keep shelves stocked is leading shoppers to go to other discounters and pay more as a result of the degradation of the shopping experience at Walmart. With Walmart itself accounting for over 2% of US GDP, the effect there is marked. Similarly, it appears that companies are increasingly asking employees to do un or underpaid work, in violation of labor laws. The rise of unpaid internships, too many of which violate with IRS rules, is one illustration (there needs to be a significant training component; the Conde Nast drill of having interns make copies and run errands for celebrity bosses is a no-no). And on the high end of the food chain, people that I know who are still on the corporate meal ticket are doing what would have been 1.5 to 2 jobs ten years ago."
"In other words, the idea that technology has been the driver of productivity gains bears some examining. There is considerable evidence that it has also come from squeezing employees. And the Walmart example suggests that companies are hitting the limit of how far they can go without degrading the product/service to the point where they start losing sales (air travel shows that you can reduce the quality of the service a great deal and still not drive customers away."
I look at it this way.
1). The fact that we have less productivity growth throughout the slow recovery, and that its slowing down to truly a snail's pace now is as she says a source of concern.
2). The fact that productivity gains can come through cutting back on workers and having the remaining ones do twice as much shows though that while we need productivity growth there can be some bad side effects and not all productivity is created equal.
3). As to resource consumption I think that should be another discussion. There are real issues with energy that should be discussed but I can't see as some NK commentators do that the answer is having less growth.
4). She's also dead right about the double edged sword that is technology. I love it-I certainly love the Internet-which makes this blog possible and so facilitates learning. However, the fact is that the Internet has permanently changed the economy and some ways are not beneficial; it's turned many workers, even with advanced degrees, into service workers. I have mixed feelings about the debate about GDP: I agree it doesn't tell us everything though it's an important gauge.
However, even the unemployment number can lie if there's no gauge that factors in job quality. We had the fewest jobs created since WWII under the Bush Administration. Yet, if you factor in the low quality of the jobs that were created it looks even worse.
5). Productivity has been slow a while save for a boom between 1995-2005. This makes immigration reform not only the right thing ethically, socially, and politically but also a very welcome thing right now economically-remember as Yves says, GDP growth= population growth+productivity. As productivity is flagging right now this is a great time for significant population growth-especially as our birth rate is down to 1.8% which is lower than our necessary 2.1% replacement rate.
Her point about Wallmart hitting the limit on how much it can cutback on workers is actually a good thing: it shows that there are other ways to achieve productivity and that there are limits on how much we can have productivity just based on cutbacks.
She's also right about a change in the economy in the late 70s:
And we have another “end of paradigm” dynamic at play. As we discussed in ECONNED, the US economy changed in the late 1970s from one where rising wages were seen as the driver of growth. Instead, policy-makers looked to deregulation (which was depicted as allowing companies to become more efficient) and rising levels of household debt allowed consumers to increase their spending levels in the absence of wage gains. But consumer debt is not productive debt (it does not fund drivers of economic productivity).
Still, what remains a mystery is productivity which started to slow 5-6 years before median income did. Why the drop in productivity starting in 1973? Arguably 1995-2005 was just an aberration. .
P.S/ So it's a good piece overall, Still, who can forget the time I argued with her and her commentators over Obama?
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