BGR, thanks. I readily agree productivity is increasing at the micro level in many sectors of the economy, especially manufacturing.
I am a bit more skeptical, however, of two things. First, how that productivity in some sectors of the economy is used to somehow explain away traditional indicia of inflation. Non-public firms that don't have the luxury of paying their employees in scrip are seeing their unit labor costs go orbital. For example, law firm salaries in Texas increased over 20% in January. Third year lawyers are now making $125K and legal secretaries are making $50K. The numbers are even higher on both coasts.
Second (and related), I question the degree of productivity gains (if any) in certain sectors of the economy. Real estate construction? Law? Traditional retailing? And, to the extent such gains do exist, they are one time events. After a law firm puts computers and word processors on everyone's desks there will be a productivity increase presumably, but will there be any subsequent increase when a new version of the word processor comes out? I doubt it.
Lastly, is there any evidence of a per se relationship of productivity and increased margins? If all of your competitors adopt similar productivity enhancing measures to yours then is it not a zero sum game as each competitor accepts lower top line revenue by passing those savings along to the end user? This relates to your earlier point about productivity being deflationary in certain instances. But, increased margins do not necessarily translate into increased PROFITS in such a scenario. Also, productivity does not exist in a vacum. It might be offset by higher labor costs (the legal example) or higher materials costs (P&G example).
Have a good weekend, Ken. |
