Reality Check: Productivity

Should one look at the forest or the trees?

We are bombarded with data on every topic related to the economy.  An important one is productivity, which is subject to many influences.  It is important because economic growth — and ultimately earnings growth — can show gains through productivity increases.

The secular decline in manufacturing jobs, more than offset by an increase in service jobs, is partly a function of improved machinery.  The output for each manufacturing worker has increased, and continues to do so each year.

Last year, before my father’s death, I had the opportunity to go to Dearborn with him and tour the Ford Rouge plant.  Sometimes one just needs the sweep of a long period of time to understand that things are different.  The Rouge plant was Dad’s first assignment after the war.  It did not even resemble what he remembered.  Many street pundits seem detached from the yearly improvements in output/worker.

While this varies from year to year, partly based upon wage gains, the overall trend is quite clear.

In the service sector it is just as dramatic.  There is a tendency for us to think that service jobs are all low-paying and menial.  In fact, most of those reading this are engaged in high-paying service work.

So let’s do a reality check.  Here is a little,  homely anecdote that got me thinking about the subject.  Our bowling league changed sites.  (This happened because the land for the former site became so much more valuable that the owners finally sold out.)  I needed to know how to get to the new site for our match.  I typed in the name of the lanes and the city in Google.  A map popped up, showing the location.  I clicked on directions and my home address was available as a starting  point.  I printed this out and had an accurate answer to my problem in less than one minute.

Multiply this by the hundreds of small tasks you do each day.  We all check scores of market commentaries in a short time with RSS readers.  News is there instantly.  I checked my flight today with Google SMS, and also scouted O’Hare parking.  I downloaded quotes and ran our sophisticated models to plan tomorrow’s trades in a few minutes.  When we have a new model, backtesting it takes hours rather than weeks.

There is also video conferencing, online sharing, and many other more sophisticated applications.

Many of these developments have taken place during the last five years.  In my operation, I think that it would take a staff of at least double our size to do what we do today.  Personally, I do three times the work that I did a few years ago.  What is your experience?  (I understand that some time is not productively spent, so you can allow for that.  Some fun is allowed, and encouraged at the top firms).

It is easy to get caught up in statistics and ignore the obvious. 

Be skeptical.  When someone suggests that economic growth is not "organic", but only a function of some sort of "stimulus", it may be time to ask questions. Do you really believe that a fully-employed work force, using better tools, has not improved since the last time that "peak earnings" were achieved?

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4 comments

  • Ward April 17, 2007  

    In addition to the increments you mention, the higher you go up the knowledge worker scale the more there seems to me to be a component of work that could be described as simply thinking about what you should do, money manager, lawyer, even doctors, greater productivity allows for that and it generates more productivity as well.

  • REW April 17, 2007  

    Jeff wrote:
    “In the service sector it is just as dramatic. There is a tendency for us to think that service jobs are all low-paying and menial. In fact, most of those reading this are engaged in high-paying service work.”
    Very true. This is a great reminder for those thinking about the state of the economy. Great post, and not a damned statistic in it.

  • James Ramos April 17, 2007  

    Jeff,
    this is a great post. It definitely puts things in context.
    best,
    James

  • Jeff April 18, 2007  

    Ward and REW (whose site I read), and also James.
    Thanks for stopping by and making your comments.
    It is very helpful to have such thoughtful observations.
    Thanks,
    Jeff