September 09, 2003

Growth Lunch Talk

I'm supposed to give a very informal talk about American productivity growth at the inaugural growth lunch tomorrow. Here is my handout.

Eighteen months ago I would have been pretty confident about what to say. (And, indeed, I said it.) I would have said that the information technology revolution had attained critical mass, and was boosting American prosperity through three channels:

  1. Faster productivity growth meant that the labor market could deliver sustained wage increases no greater than the productivity-warranted rate of real wage growth at a lower unemployment rate, and thus that the infotech revoution had reduced the economy's natural rate of unemployment--perhaps by as much as two percentage points.
  2. Outstanding productivity growth in the making of infotech products was boosting economy-wide productivity growth by the rate of leading-sector productivity growth times the share of economy-wide total expenditure spent on infotech products.
  3. Outstanding productivity growth in infotech boosts economy-wide productivity growth by a further important channel: cheap infotech capital goods raise the economy's capital intensity and boost productivity growth by the rate of leading-sector productivity growth times the quotient of the infotech production-function share divided by labor's production-function share.

But the past year and a half's data have been really weird: extraordinary labor-productivity growth unaccompanied by capital deepening, an unprecedented employment-productivity pattern, plus evidence of a large shift away from the "cyclical employment" model. A lot of things are up for grabs right now...

Posted by DeLong at September 9, 2003 08:30 PM | TrackBack

Comments

Let me offer a thought I stumbled over today; we've found a whole range of new and better ways to address the human need for contact--communication--through technology. The economy is starting to relate to that human need in new ways.

Does this relate? I suspect it does, but am not clear how.

Posted by: Randolph Fritz on September 10, 2003 12:48 AM

OK, I posted this yesterday, but I repeat:

Stephen Roach wrote a good article on productivity last week and I pretty much agree with him. Measuring productivity in a service based economy is very tricky: measuring the productivity of a hairdresser, lawyer or a programmer is inherently difficult. I would also like to know how truthful companies are in reporting work hours figures etc. to the Bureau of Labor Statistics. And is the BLS audited or monitored by an independent body ? The BLS has been changing its methodology several times in the past decade.

I really would like to know more about the reliability of data that the BLS receives.

Posted by: Nescio on September 10, 2003 01:34 AM

The BLS audits its own work, in benchmark revisions. University professors and investment house economists pouring over the data BLS generates and stack those data up against other things going on in the economy to look for consistency. When there is inconsistency, those same folks set about looking for the most obvious source. Many are in regular contact with BLS economists regarding methodology and data.

Most benchmark revisions have left reported trends intact, even after methodological changes. The details change, and on rare occasion there is a notable change in trajectory (though not in direction) in some data series, rather than just a redistribution of jobs and output between adjacent periods.

My guess is that BLS is not messing up. Rather, they are not keeping up as well as they would like with changes in the economy. If a problem is identified, they will fix it, budget allowing. Budget is a big problem. As a point of comparison, you'll find that other G7 data are reported later, and in less depth, than those from the US, even though the US economy and labor market are considerably larger than any others. That's not to say improvement cannot be made, but rather that BLS economists and statisticians are putting in a good day's work and not taking much for granted.

Posted by: K Harris on September 10, 2003 04:27 AM

If we ARE in a new info economy, we need to expect that the former correlations and rules of thumb may no longer hold.

It's likely there are important, changing variables that are not being modeled in a way that reflects reality. Too bad we don't know what they are -- but that's Brad's job, to tell us.

Posted by: Tom Grey on September 10, 2003 05:29 AM

My experience and observations are purely anecdotal, but I believe that a pervasive shift toward more draconian labor expectations among employers is greatly exaggerating the productivity of the workforce. Everyone I know who is lucky enough to have a job, is working twice as hard as they used to, often carrying the workload of more than one former down-sized colleague. With the job market what it is, very few are in a position to resist. Granted my experience is limited to mostly the professional world where there is no concept of overtime - and thus no corresponding increase in reports of hours worked per employee. However, I suspect many businesses are imposing flat-rate salary compensation onto workers who might have previously been hourly wage earners thus exacting productivity benefits without reporting the anticipated increase in working hours. I would imagine this trend is accelerating as our economy sheds more jobs previously protected and regulated under organized-labor agreements. I would also expect that even in the case of non-union workers, many labor laws that imposed wage protections have eroded to a point where employers are able to circumvent the payment and accounting of overtime for whole classes of labor once more closely regulated. And of course outsourcing continues to infest every level (from the shop floor to the accounting dept, up through management) of corporate America rapidly replacing payrolls with line-items costs.

It may only be a piece of the pie but I'm sure it is a significant contributor.

Posted by: -Tater on September 10, 2003 06:36 AM

Tater,

For what it's worth, the Senate voted yesterday to block a White House plan to issue new rules governing who is eligible for overtime. Without commenting on the merits of the arguments on either side, it is apparent that the rules would have narrowed the range of workers who are eligible for overtime. The Senate vote does not foreclose new rules. The House voted in favor, so the issue now goes to conference.

http://www.washingtonpost.com/wp-dyn/articles/A54091-2003Sep10.html

Posted by: K Harris on September 10, 2003 08:29 AM

Welcome you to WarMart...

-----------------------------------

>"...But the past year and a half's data have been really weird: extraordinary labor-productivity growth unaccompanied by capital deepening, an unprecedented employment-productivity pattern, plus evidence of a large shift away from the "cyclical employment" model. A lot of things are up for grabs right now..."
---BDL

>"...this is the first truly global recovery [in which] American corporations now rebound by hiring (when they hire at all) abroad rather than in the States..."

'Stuck Like Lyndon'; By Harold Meyerson
Wednesday, September 10, 2003

http://www.washingtonpost.com/wp-dyn/articles/A51929-2003Sep9.html

-----------------------------------

...Cat food is in the codgers' section, on aisle 3: next to candles and cough syrup.

Have a 'productive' day...

Posted by: Mike on September 10, 2003 10:47 AM

Many of my clients have been able to achieve productivity growth without large capital expenditure becuase of seriously underutilized IT systems. I have seen quite a few of my clients suddently realize that they spent $XXX,XXX on some huge system that has gone unused or under utilized. CRM and ERP installations are a great example. As utilization of these systems increases productivity generally goes up but without additional capital investment.

Posted by: kevin D. white on September 10, 2003 02:34 PM

This is a rehash of an earlier post and a bit tech-centric but…

Many of the problems that we encounter aren’t unique. Other people have encountered and solved them before. Ideally, you would like to leverage these ‘common solutions’ so that you can focus on the aspects that are unique.

Pre-internet, finding a common solution meant:
- Finding a consultant who ran into the problem before.
- Doing some research to see if someone already published the solution.

Each of these has a cost and beyond a certain point, it’s less expensive to solve the problem yourself. The internet, by dropping the incremental cost of publishing information to (near) zero, makes the last approach much more effective. Even if the solution is already published in hardcopy, search engines dramatically cut down the time required to find it. However some solutions don’t justify the costs of hardcopy publishing at all or the publisher can only afford to present the most general form. With the costs at close to zero, they can be published along with a discussion of tradeoffs and caveats.

The end result is that we now spend a less time re-inventing the wheel and more time solving the unique problems.

Posted by: chris_a on September 10, 2003 06:18 PM

I share the hunch of others that the key in on the labour side.

One approach is to look at the workplace relationship: incentives and asymmetric information ŕ la Stiglitz, the changing balance of power in a recession, the Dilbertian sociology of the cubicle universe. Wally can get away with more because the pointy-haired boss doesn‘t understand what he does; Dilbert would get more done if his boss understood him. In several ways the new workplace seems more voluntaristic and less mechanical and may be more sensitive to external information. But I don’t see how to turn this from speculation into an operational explanation of the trend.

Another is to look at human capital and learning. For a new lathe, a worker learns over time how to use it efficiently – the learning curve has an asymptote at a new level. The same holds of course for warehousemen with bar-code scanners. But for general-purpose tools like search engines and spreadsheets, there’s no asymptote – semper aliquid novum. The simple dichotomy of experienced v. inexperienced labour breaks down, people are more or less good and bad learners and in different ways. (I am inventive with spreadsheets but can’t manage my e-mail). The more flexible (i.e. Darwinian) US labour market may be better than others at matching more diverse pegs with more diverse holes: in real life, Wally is fired and Dilbert changes job, like his creator.

How’s about this for a much cruder hypothesis. The current US productivity boom is a one-off catching up with the deficiencies of school education: for example, with the aid of Microsoft, US youngsters have learnt to spell, and with that of CNN, where Bali is. French, Japanese and Swedish school-leavers can spell already (the Japanese in three scripts and the Swedish in two languages). This argument predicts a US productivity slowdown, while technology-driven hypotheses would predict a European acceleration.

Posted by: James Wimberley on September 11, 2003 08:10 AM

I share the hunch of others that the key in on the labour side.

One approach is to look at the workplace relationship: incentives and asymmetric information ŕ la Stiglitz, the changing balance of power in a recession, the Dilbertian sociology of the cubicle universe. Wally can get away with more because the pointy-haired boss doesn‘t understand what he does; Dilbert would get more done if his boss understood him. In several ways the new workplace seems more voluntaristic and less mechanical and may be more sensitive to external information. But I don’t see how to turn this from speculation into an operational explanation of the trend.

Another is to look at human capital and learning. For a new lathe, a worker learns over time how to use it efficiently – the learning curve has an asymptote at a new level. The same holds of course for warehousemen with bar-code scanners. But for general-purpose tools like search engines and spreadsheets, there’s no asymptote – semper aliquid novum. The simple dichotomy of experienced v. inexperienced labour breaks down, people are more or less good and bad learners and in different ways. (I am inventive with spreadsheets but can’t manage my e-mail). The more flexible (i.e. Darwinian) US labour market may be better than others at matching more diverse pegs with more diverse holes: in real life, Wally is fired and Dilbert changes job, like his creator.

How’s about this for a much cruder hypothesis. The current US productivity boom is a one-off catching up with the deficiencies of school education: for example, with the aid of Microsoft, US youngsters have learnt to spell, and with that of CNN, where Bali is. French, Japanese and Swedish school-leavers can spell already (the Japanese in three scripts and the Swedish in two languages). This argument predicts a US productivity slowdown, while technology-driven hypotheses would predict a European acceleration.

Posted by: James Wimberley on September 11, 2003 08:12 AM

I share the hunch of others that the key in on the labour side.

One approach is to look at the workplace relationship: incentives and asymmetric information ŕ la Stiglitz, the changing balance of power in a recession, the Dilbertian sociology of the cubicle universe. Wally can get away with more because the pointy-haired boss doesn‘t understand what he does; Dilbert would get more done if his boss understood him. In several ways the new workplace seems more voluntaristic and less mechanical and may be more sensitive to external information. But I don’t see how to turn this from speculation into an operational explanation of the trend.

Another is to look at human capital and learning. For a new lathe, a worker learns over time how to use it efficiently – the learning curve has an asymptote at a new level. The same holds of course for warehousemen with bar-code scanners. But for general-purpose tools like search engines and spreadsheets, there’s no asymptote – semper aliquid novum. The simple dichotomy of experienced v. inexperienced labour breaks down, people are more or less good and bad learners and in different ways. (I am inventive with spreadsheets but can’t manage my e-mail). The more flexible (i.e. Darwinian) US labour market may be better than others at matching more diverse pegs with more diverse holes: in real life, Wally is fired and Dilbert changes job, like his creator.

How’s about this for a much cruder hypothesis. The current US productivity boom is a one-off catching up with the deficiencies of school education: for example, with the aid of Microsoft, US youngsters have learnt to spell, and with that of CNN, where Bali is. French, Japanese and Swedish school-leavers can spell already (the Japanese in three scripts and the Swedish in two languages). This argument predicts a US productivity slowdown, while technology-driven hypotheses would predict a European acceleration.

Posted by: James Wimberley on September 11, 2003 09:06 AM
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