Economic View: A 'Miracle,' But Maybe Not Always a Blessing
By LOUIS UCHITELLE
From The New York Times
February 25, 2001
Rising productivity is a wonderful thing.
Income and living standards improve
when companies find ways for their workers
to produce more in each hour they spend on
the job. But sometimes surges in productivity
backfire, and this may be one of those times.
The productivity miracle of the last five years
takes for granted that people will buy the rising
output of goods and services. Take away
demand or reduce it, and the productivity
payoff turns sour. The economy slows, as it is
slowing today, and companies shed workers
or cut hours, or both. Because they are more
efficient, they need less labor, and
unemployment becomes more of a problem
than it would have been had productivity not surged.
"We are surely going to experience a pop- up in the unemployment rate,"
said Dale Jorgenson, a Harvard economist and expert on productivity.
"The rise in January, to 4.2 percent from 4 percent in December, was
just the beginning."
A pop-up in unemployment assumes that there really has been an
enduring surge in productivity since 1995; that a new economy actually
exists. Those who think so have concluded that widespread deployment
of very fast computers and of innovative information technologies has
raised permanently the level of corporate efficiency, in downturns as well
as in booms. The unemployment rate will be a test, unfortunately, of the
new economy's endurance. More endurance means fewer workers.
Productivity often rises in good times. Pressed to fill orders and to satisfy
strong demand, employers push their employees to work harder and
faster. Then, when the economy slows and demand eases, so does the
extra effort and the productivity. The issue is how much easing. For many
decades, there wasn't much. The productivity growth rate averaged
nearly 3 percent a year.
But then, in 1973, corporate America lost its knack for efficiency, and
for more than two decades, productivity grew at an insipid 1.3 percent a
year, on average, and the growth rate of the entire economy fell in
tandem. The White House and the Federal Reserve shifted their focus.
They stopped concerning themselves with ways to augment demand, so
that it would keep up with the ever-rising supply of goods and services.
Instead, they discouraged demand, usually through higher interest rates,
so that it would not outstrip supply and increase inflation. Then, in 1995,
productivity revived, to the old 3 percent level.
Now the revival, a k a the new economy, is being tested in its first
downturn. If the new economy proves its endurance, the unemployment
rate is likely to jump — by one or two percentage points more than it
would have risen in the old, less-efficient economy. On the other hand, if
the wonders of the new economy have been exaggerated, then we are in
for another stretch of meager productivity growth and thus meager
improvements in living standards for most Americans.
The mathematics of this process are easily illustrated. A company
employs 100 people to assemble 1,000 refrigerators an hour. By
installing computerized machines or reorganizing the assembly line, the
company raises the output to 1,030 refrigerators, a productivity growth
rate of 3 percent. Through raises, the workers can share in the income
from the sale of the extra 30 refrigerators.
They are likely to keep their raises in a slowdown. But if demand falls
back to 1,000 refrigerators an hour, and the assembly line maintains its
newly acquired efficiency, then jobs disappear, often through layoffs. The
company no longer needs 100 workers to assemble 1,000 refrigerators
an hour. Five or six jobs are lost, and this process, multiplied across the
economy, can help to turn a mild downturn into a very painful one.
That happened during the Depression. Numerous innovations and market
efficiencies raised the productivity growth rate in the 1920's and 1930's,
and as unemployment rose so did the outcry about "the effects on
employment of increased productivity and technological change,"
according to a history of the Bureau of Labor Statistics. Under pressure,
the bureau began to measure productivity and job displacement in many
industries. The information was deemed by the unions of the day to be
"necessary in collective bargaining for dealing with the problem of
technological unemployment."
Public works projects in the 1930's eventually absorbed hundreds of
thousands of displaced workers. That sort of government spending is out
of fashion today, of course. The main tool for reviving the economy is
concentrated in the Federal Reserve's power over interest rates. And the
surge in productivity, which the Fed's chairman, Alan Greenspan, has
welcomed so joyously, is now, in the short run, a potential burden.
nytimes.com |
