Professor Alan S. Blinder has an intriguing article in the
Wall Street Journal written under the title: “The Unsettling Mystery of
Productivity” and the subtitle: “Since 2010 U.S. productivity has grown at a
miserable rate. And no one, not even the Fed, seems to understand why.” The
article was published on November 25, 2014 in the Wall Street Journal. Mr.
Blinder explains the mystery in detail, and ends the article with this thought:
“Maybe some attention should be deployed to studying productivity growth.”
That's a tall order, professor, and there is a good reason why.
When you come down to it, an economy is measured in two
ways, one tangible and one intangible. The tangible is that to which you can
assign a hard number such as a million tons of iron, or a million tons of
wheat, or a million cars or a million housing units. The intangible is that to
which you assign a value based on an impression as to its aesthetic features or
its perceived qualities. This can vary from saying something like “this car
looks better than that one” to saying “the CAT scan has detected the tumor that
the X-ray machine missed.”
When measuring the value of an economy, you take a snapshot
of all the goods and services it produces at a given time, assign an applicable
tangible or intangible number to each – maybe even convert all that into a
dollar value – thus obtain what is called the Gross Domestic Product (GDP). To
measure the growth of the economy, you take another snapshot later on, and
compare it with the previous. The difference between the two numbers indicates
the growth for the period, be it positive or negative.
Another number that some economists like to make use of is
labor productivity. The trouble is that this number can be tangible or it can
be intangible. For example, if an iron mine produced 1,000,000 tons of ore last
year while employing 100 workers; and produced 1,100,000 tons this year
employing the same number of workers, it will be said that labor productivity went
up 10 percent for this mine. These have been hard numbers and easy to work
with.
Where difficulty creeps into the attempt to measure labor
productivity is where the products – be they goods or services – have evolved
from one period to the next. For example, what number do you assign to a CAT
scan that has detected a tumor the X-ray machine failed to detect? Likewise,
how much “better” is a color TV set than a black and white set? Or this one:
How much better are the bedside manners of one doctor over those of another
doctor? Can that reflect on the entire hospital? And so on and so forth.
The way that things are done now is to rely on the
marketplace assigning a dollar value to every activity, yielding hard numbers
to work with even though such numbers can be purely subjective. This happens
often when bubbles are formed around a single product, such as a tulip, for
example; or when they form around a sector of the economy, such as housing or
high tech. The problem in these cases is having to differentiate between what
is productivity and what is inflation.
All that aside, if we assume that formulas and indexes can
be devised to measure those intangibles with a degree of accuracy, there is
something else that will be near impossible to measure; this would be human
psychology. Having worked in several companies over the decades where the
products made and/or the employees have changed periodically, I can report that
the mood in a company can change overnight from extreme optimism to extreme
pessimism or the other way around.
That can happen for a trivial reason or a serious one, and
it is no exaggeration to say that the productivity of the employees can vary by
as much as 30 percent with a change in mood. The reason for the change can be
specific to a department, to the entire company or to a shift in the trend of
the economy as reported in the news or an action taken by the government.
When this happens to a number of large companies at the same
time, they affect the overall productivity of the economy. And the effect can
last for as long as the same group of employees remains in the company. But if
there is a mass layoff, things can change with the next group of hires
depending on what happens at the level of management. It can get better or it
can get worse still.