Productivity: Potential Belies the Numbers

Time was when it took a pony express rider to inform the nation what was happening to its economy. Now, the pulse is taken and the results reported almost constantly, with every slight change analyzed by economists, applauded if at all possible by the White House and probably often ignored by a public awash in statistics.

It’s a measure of the economic turbulence of the past 15 years that so many of these pulse-takings now make it to page one. We not only get a quarterly report on the gross national product, we also get a so-called “flash” report long before the full numbers are in. We get an index of leading indicators that’s supposed to warn us of impending boom or bust, but most often just gets revised a few weeks later.

Now and again, a smart reader raises a question about all these numbers, about how they are collected and what they really measure. One of those numbers is the quarterly report on the nation’s productivity.

What the stories tell us is that U.S. factories haven’t shown a robust gain in how much they can turn out with a given number of workers. Compared with some major competitors, such as Japan, American business may still hold a slim lead in efficiency, but in many industries it has lost what was a huge advantage. At times, there’s the suggestion this reflects badly on the dedication of the American worker.

Very Rough Measure

The problem with the numbers is that they are a very rough measure of worker output. The nation’s total output of goods and services, with a few things dropped out, is compared with figures gathered in monthly surveys of weekly hours and other employment data. That leaves a lot of things unmeasured. For example, vacation time is lumped into those hours worked because those are hours paid for. Yet obviously as paid vacations get longer, this overstates the amount of labor actually going into making a product although not the total cost of labor.

Then there’s the question of what’s being produced. A group of workers turning out a car in 1950 certainly were turning out a different car than those complex vehicles being turned out today. Despite efforts to factor out such changes, it’s almost impossible to keep those adjustments current. The big question now is the dramatic advancement in computers. The government is working up data to adjust for that change because it means the total output of the American work force is being understated.

Many other factors affect U.S. productivity. The number of relatively untrained workers--baby boomers, women newly entering the work force--helped depress productivity gains for a time. The numbers don’t just measure how effectively the labor force is working, however. They also reflect what tools the workers are being given to use. Give the production line worker an automatic welder and clearly he or she is more productive, but sometimes at a higher cost.

Reason for Improvement

It is this factor that has given Japanese productivity such a boost. Japan at last check in 1982 was outspending the United States by 35% on new industrial facilities, helping to explain why Japan’s productivity improvement, at 5.2%, is so much above the 2.9% registered by the United States last year. (Except for Japan, the U. S. number is roughly in line with most other major industrial countries.)

By far the most important distortion, however, is the state of the economy. Productivity simply doesn’t improve much in periods when companies are cutting back, because the cost savings lag behind the decline in output. Companies have been pouring big sums into capital equipment in recent years, mostly not to expand capacity but to improve efficiency. Thanks to the flat economy, they haven’t tested the full capability of their work force using that new equipment. When that chance comes, productivity improvements may turn spectacular, helping to hold down costs and keep inflation at bay.

That’s just a taste of some of the complexity behind government numbers. It suggests that when statistics are overanalyzed, the nation may be like the chronic pulse-taker--he finds out more about his body than he needs to worry about.