Worker Productivity and the Current Economic Debate
Christopher Matthews of Time magazine recently posted an interesting piece on an under looked aspect of the economy: worker productivity. His central argument is that rising worker productivity is what allows for either rising wages or more leisure time. However, worker productivity has been declining even before the onset of the recession and the numbers are astounding.
He cites work from economists at JPMorgan Chase that shows that from 1995 to 2005 worker productivity average was 2.9 percent while the last three years (2010-2013) worker productivity average was only 0.7 percent. The first quarter of this year actually saw average worker productivity dip to -1.7 percent and the second quarter only rebounded to 0.9 percent.
Much of this revolves around the role of technology and the revolution in efficiency gained from it. The JPMorgan economists released a report entitled “Is I.T. Over?” and stated that, “Over the past few years the real price of information-processing equipment and software has declined at the slowest pace in more than a generation.”
Why is that statement important? Because the essence of the argument is that as firms invest in new technology, workers become more efficient and the price of the new technology declines which allows it to be more diffusely spread. Therefore this slowing down of the price decline of technology implies that the original gains in efficiency may be slowing down. The way out, according to the author, is a wave of new technology that would unleash a whole new round of worker productivity akin to the advent of the internet in mid-1990s.
Christopher Matthews then situates the debate over how to best unleash the needed technological innovation within the broader economic debate the American political system is currently having. On the one hand, those of a small government view believe that this new technology would best be unleashed by supporting the entrepreneur and let their ingenuity take over. They believe in Sey’s Law which states that, “Supply creates its own demand.” A good example is Steve Jobs and the iPod which had no demand until he created it.
Those on the other side believe that government can and should help businesses by stimulating the economy which they hope would then increase consumer confidence and spending which would then drive companies into innovation.
He ends on an ambivalent note remarking that, “this debate has one side stressing the ingenuity of the producer class, while the other emphasizes the health of the consumer class…Right now we have neither, and we’re not quite sure which ought to come first."