December 28, 2003

Increased Productivity or a Higher Rate of Relative Surplus-Value?

To what degree is rapid growth in productivity a boon? How much of it is getting more stuff for the same inputs? And how much of it is squeezing more work out of workers for the same pay--in increase in what old Charlie Marx used to call "relative surplus value"? The San Francisco Chronicle's Sam Zuckerman has some thoughts:

THE YEAR IN BUSINESS / Economy growing but many workers left out / Relentless cost cutting slows hiring, sends job overseas: The phenomenon of rising production, rising sales and flat or shrinking employment points to another feature of today's economy -- an astonishingly high rate of increase in productivity. In both the manufacturing and service sectors, output per hour of labor is now increasing at about three or four times the rate that prevailed during most of the last three decades. The usual explanation for rapid productivity gains is that employers are finally reaping the benefits of information technology. Computers are operating machinery, tracking inventory, answering customer questions and performing myriad other tasks that used to require a human being.

But something else seems to be at work as well. Businesses have pared their staffs to the bone, forcing remaining employees to work harder. As sales pick up, employers have been slow to hire, which further adds to work loads. In other words, it's not just that higher productivity means less hiring. It's also that less hiring means more work per person. And more output per person is the definition of higher productivity.

That gives rise to a workplace lament heard constantly, especially among Bay Area technology sector employees. "They haven't been hiring, and we've lost through attrition. At the same time, the work load hasn't diminished at all," reported a technical writer for a major Silicon Valley computer company, who asked not to be identified. "A normal workload for a writer of my experience would be about a book a year, a book being about 300 to 500 pages. I would say I'm turning out double that." Such fast-growing productivity is a tremendous boon for society, economists stress. While jobs might disappear in the short run, higher output per worker spurs growth that in the long run creates more opportunity. Higher productivity generates profit that is often reinvested in new job- creating activities, they note.... Still, it can be hard to appreciate the long-run benefits of a more efficient economy if you are out of a job or overstressed. Said the Silicon Valley technical writer: "A lot of people have realized that the overworked miracles they are pulling off are not temporary things. If you pull something off and regard yourself as a hero, all you are doing is proving to management that the work can be done with a much smaller workforce."...

Posted by DeLong at December 28, 2003 10:50 AM | TrackBack

Comments

>Said the Silicon Valley technical writer: "A
>lot of people have realized that the overworked
>miracles they are pulling off are not temporary
>things. If you pull something off and regard
>yourself as a hero, all you are doing is proving
>to management that the work can be done with a
>much smaller workforce."...

One of the critical insights which my own stint in Valley management taught me was this:

Stakhanovism doesn't scale.

I'm still amazed by how hard elite tech workers are willing and able to push themselves, and for how long. But at some point, those people will begin to fail and break down.

Sometimes the cause will be pure physical exhaustion or illness, sometimes it's psychological boredom or burnout. The milder consequences are recoverable with some time out of the office. But fatal strokes and heart attacks aren't. Nor are acute psychotic fugues.

In my experience, the collapses usually happen during the inevitable surge in workload. Be it a desired and expected growth spurt by the company, or an unscheduled crisis, either are made much more difficult to manage professionally when individuals are unable to respond as intended.

They simply can no longer cope. They don't have anything left with which to do so.

What was the line from _This is Spinal Tap_?

"But you don't understand. This goes to eleven."

Employees are able to go to eleven in some cases. But asking them to sustain that tempo as routine is a recipe for disaster.

That's the microeconomic view. I am certain that there will be equally pernicious macroeconomic consequences once the practice becomes as widespread as it has now.

Another highly talented tech professional of my acquaintance announced last week that he's stepping off the treadmill and moving out of the Valley. He is one among many such persons of whom I have direct knowledge -- they're becoming carpenters or massage therapists or are simply retiring on what personal capital they have retained.

The Valley, and by extension the broader US tech economy, will be in, believe me, a *world* of hurt as a result of the loss of those persons' skills and enthusiasm for their work.

Posted by: marquer on December 28, 2003 11:39 AM

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you load sixteen tons and what do you get? Another day older and deeper in debt.

Posted by: big al on December 28, 2003 11:48 AM

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Well, then, how you you gain a sense that you need to care about pressed workers at Safeway as well as yourself? A German Wal-Mart will not treat workers differently than other German retailers, and in no way like an American Wal-Mart. Can I identify my professional comfortable self with a worker fighting against health benefit cuts at Safeway?

Posted by: anne on December 28, 2003 11:56 AM

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If economics is about making a more efficient society, but all of the fruits of the efficiency go to the top 1%, remind me again why I should care if something economists favor, like free trade, is more efficient?

Posted by: marku on December 28, 2003 12:52 PM

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I think it is basically increasing productivity, and some amount of squeezing more work out for same pay.

I say it again, read my lips:

Higher taxes.

And a New-New Deal with a global reference.

Howard Dean has about a year to come up with a good plan.

Posted by: Bulent Sayin on December 28, 2003 12:54 PM

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Any Democrat will be better for middle class households than George Bush. The same for every Democrat running for Congress versus a radical Republican.

Posted by: Emma on December 28, 2003 01:14 PM

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Productivity as quoted and measured in the press is a lot less simple than "output per worker hour." Could someone more knowledgeable than myself list or reference a site where the measurement, adjustments, etc. that go into the calculation are explained?

Posted by: Egg on December 28, 2003 01:30 PM

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Support your local Democratic candidate, then.

For Washington, however, it may be that the earlier you make up your mind about which Democratic candidate, the better the chances of a Democrat running the White House come January 2005.

Posted by: Bulent Sayin on December 28, 2003 01:38 PM

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Stephen Roach has long questioned how much of the productivity gains since 2001 have been at a cost of additional hours of work. There have been several EPI.org studies reported in the New York Times and discussed by Brad, that show the bulk of returns from productivity increases since 2001 going to ownership rather than employees.

Posted by: anne on December 28, 2003 01:59 PM

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I've been working on construction for the past couple of months, a great cure for ten years in front of a monitor, though still with a few more pounds to lose. (Sixteen tons, incidentally, is not a whole lot to move from A to B in an eight or ten hour shift, though if you have to strip it off the coal face it's no doubt a bitch.)

One of the things this has taught me is the truly awesome gains in productivity available just through the elimination of easily stopped waste. There are dolts out there leaving 50 pound boxes of nails out in the snow to rust, and then throwing them away because they're rusty. OK, it's only material, which costs near nothing, but surely these nothings must add up?

I'm amused to see on TV that Ford is advertising the excellence of the frame/underbody of the 2004 F-150 pickup trucks, since I've been spending some of my weekends making these things, i.e. shoving 200 pieces of 57 pound sheet metal into an oiler, whence another guy shoves it under a ten-ton press. (I've written to Phillip Glass suggesting that the wonderful sound of this press would be a chord which would bracket the twentieth century, Wagner's Parsifal chord being the opening bracket.) When it comes out the other side, it's one of the four parts of the much advertised F-150's pseudo-frame.

Quota for this work is, as I say, 200 an hour, or somewhat over five tons of metal moved. As management presents the job I cannot imagine anyone doing it. However if you put the basket up on blocks, tilt it toward you, and have one of the fork-lift jockeys shake all the sheets to the front near to you, no sweat. Don't work hard, work smart. No, we don't get paid for thinking. We just tell each other that a guy's first duty is to save his back. Productivity is a side effect.

I'm reminded a little of Solzhenitsyn's description, in "August 1914," of the Russians entering Prussia and being amazed at how the Prussian peasants actually looked after stuff.

Bringing Canadian construction and manufacturing from Russian to Prussian peasant standards would be an overnight productivity gain in at least two digits wherever the magic wand was waved.

Posted by: David Lloyd-Jones on December 28, 2003 02:14 PM

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Leftist always want to punish, er, tax the rich. But if the profits are going to owners, shouldn't the goal be to become an owner? Like, with forced savings, e.g., 10% of your income required to be saved in your own, personal retirement account. So that, over time, you become an owner.

Posted by: Tom Grey on December 28, 2003 02:43 PM

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sorry, I was a little flippant, being above the fray. Could it be that employers are reluctant to hire until they are sure that there won't be a double dip?

Posted by: big al on December 28, 2003 02:45 PM

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". But if the profits are going to owners, shouldn't the goal be to become an owner? "

Right!

Buy shares in companies, then engage in "shareholder activism"!

That'd be a good exersize in direct democracy.

And then start discussing collective ownership of capital! :)

Posted by: Bulent Sayin on December 28, 2003 02:52 PM

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DAvid Lloyd JOnes,

I believe that the work smarter, not harder point is the main point of the original CHeaper by the Dozen protagonist (the father) whose main insight into work and efficiency was when he worked as a bricklayer. He believed that the laziest man on the job had perfected the task in the smallest number of moves and that it is those moves that should be replicated in teaching everyone how to perform the job. Whether that works for the worker, long term, is another matter.

Kate Gilbert

Posted by: Kate Gilbert on December 28, 2003 03:12 PM

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"While jobs might disappear in the short run, higher output per worker spurs growth that in the long run creates more opportunity. Higher productivity generates profit that is often reinvested in new job-creating activities...."

I'm not an economist, but isn't this another trickle-down argument?

In businesses with large concentrations of stock in the hands of a few (most of them), these gains are going to the rich. But in our consumer economy the rich just can't consume enough to get a worthwhile trickle going. Instead they have to put all that unneeded cash into diversions such as political and social control (the nouveaux riches are particularly prone to this) or "lasting legacies" (as favored by the ancien regime).

If you want to pump up the economy, pay the workers for their increased productivity; they'll spend it.

Posted by: Andy Hughes on December 28, 2003 04:50 PM

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Andy: Why wouldn't labor demand rise with productivity? Labor's share of national income has been about 70% for all of the past century. If it becomes a better deal to hire more workers at a given wage, why wouldn't firms do so? Has everything that we know about factor demand been repealed? Do firms not care about profits?

If I were permanently rich (and I'm not--I left the labor force this past year to purusue a life of poverty and sun in grad school) I could certainly find stuff to consume. White Castle, maybe. Otherwise I'd save a bunch and end up owning capital, increasing labor productivity.... Either way total income has to equal total expenditures. This really seems to confuse people for some reason.

I don't get what this trickle-down comment is about--the thing you quote is simply the definition of productivity followed by the guy saying that since production becomes more profitable, there will be more of it. Pretty reasonable to me, and the capital-labor ratio has been increasing over the long run with productivity. This has nothing to do with giving money to the rich or not.

Regarding effort and business cycles, are people making a distinction between intensity of effort and hours worked? This might bear on the calculation of productivity, if hours worked are being underestimated.

Anne: You're saying that production is convex in hours of work? I'm confused by that, since intuition suggests concavity. Unless you mean what I asked in my previous paragraph.

Enough of a brain dump for now.

Posted by: Chris on December 28, 2003 07:35 PM

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In today's San Jose Mercury News, a roundtable about productivity. Here's the opinion of Kevin Fong, general partner Mayfield Venture Capital:

FONG: There's something at an individual level that people in the Valley have to sign up to do, as well. In this globally competitive marketplace, you have engineers in China that go to work from 8 (a.m.) to 10 (p.m.). The company feeds them lunch, a great lunch. They have great facilities, equal to the Valley. They serve them a great dinner, and they work six days a week. They go home to be with their families during a month during Chinese New Year. But after that, they're working hard, and they're really dedicated to what they're doing.

And so we have to recover from the sense of entitlement. Individuals have to want to get retrained. They're going to have to want to work hard. Sometimes I wonder whether or not we've lost that in the Valley.

Posted by: cafl on December 28, 2003 08:24 PM

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I find myself wondering to what extent recent productivity gains are really due to medical inflation (and also the collapse of the insurance industry's investment portfolios).

Or, to put it another way, each payroll position needs to produce enough to cover salary + benefits. The cost of benefits have been increasing at a rate greater than GDP. Is it the case that the actual hours worked that are required to cover benefits are simply growing faster than reported hours worked?

Is the "productivity growth" phenomenon simply masking the underlying structural problem of runaway medical costs?

Posted by: Michael Robinson on December 28, 2003 10:09 PM

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And David's story can be repeated over and over.
Who among us has not screamed in frustration at brain-dead phone-routing systems that ask you to enter some number, only to be routed to a person whose first question is to ask you the exact same thing?
Who has not dealt with idiotic tech support systems (for ISPs or software) who, if they would only publish an FAQ on their front page of their web site, by tracking the most common questions coming in, would reduce their call volume by 70%.
Who has not dealt with the strange netherworld of buying tickets where, the more efficient the method of selling you the ticket (online vs the phone vs in person) the higher the "convenience" charge?
And, of course, let's not forget the world of medicine, proudly flaunting is 1830's bureacratic smarts and considering it a major technological breakthrough if someone in the system uses a typewriter or a fax machine.

Posted by: Maynard Handley on December 29, 2003 01:44 AM

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Productivity is not about working smarter -- that's efficiency.

Productivity is break-through.

It is either getting machines or some form of automata to do the work that humans used to do.

Or it is about creating value that did not exist before.

Productivity is an absolute measurement; output per unit input.

Efficiency is relative, unitless, dimensionless, actual output divided by standard /expected / targeted output -- it is percentage.

Cost-effectiveness, on its part, is output for the dollar.

Posted by: Bulent Sayin on December 29, 2003 02:21 AM

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"FONG: There's something at an individual level that people in the Valley have to sign up to do, as well. In this globally competitive marketplace, you have engineers in China that go to work from 8 (a.m.) to 10 (p.m.). The company feeds them lunch, a great lunch. They have great facilities, equal to the Valley. They serve them a great dinner, and they work six days a week. They go home to be with their families during a month during Chinese New Year. But after that, they're working hard, and they're really dedicated to what they're doing."

The response to that in Turkey, in the old days, at least, would be something like this:

"Hey, is your mommy pretty?"

But I won't say that. Instead, I say this:

Hey! 'ow 'bout a bit of "economy by the people for the people"!?

Ho Mon Dieu! We are talking about making Chinese labor law and practice resemble that of civilized world and this guy is talking about doing exactly the opposite! What is this world coming to any way!?

Posted by: Bulent Sayin on December 29, 2003 10:25 AM

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"I'm still amazed by how hard elite tech workers are willing and able to push themselves, and for how long. But at some point, those people will begin to fail and break down."

Sorry for joining the discussion late.

The consequence is not necessarily physical or mental breakdown, especially if the pressure is of a relatively "mild" nature. Often times people to some extent lose the interest in their careers and their professional pride, and become cynical, or at least distrustful of management.

In what I have seen so far in my own career as a software engineer, pushing people to more involuntary overtime will over the long term result in increased suffering, but usually there is little to show in increased output.

Unreasonably short deadlines lead to more shoddy work, and fixing the problems often neutralizes the schedule gain, or even extends the schedules on future projects (because generally subsequent versions of the product evolve out of the same source code base). This creates an artificial and completely unnecessary level of stress and sense of underperforming in the people involved.

The net result is that good people are being burnt out, and while technically they are able to perform, they may have lost their "drive", and are increasingly hard to motivate.

Posted by: cm on December 29, 2003 04:38 PM

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