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Worker Productivity Is Up, But Are Employers Sharing The Wealth?
Originally published on Mon February 10, 2014 2:06 pm
MICHEL MARTIN, HOST:
This is TELL ME MORE from NPR News. I'm Michel Martin. We'd like to start the program today by talking about Friday's jobs report which was once again disappointing. The report also shared bad news for people who are working that wages remain stagnant.
There was good news, though, for employers. Worker productivity has gone up. We wanted to talk more about what productivity means and what this whole issue means for the economy, so we've called once again on NPR's senior business editor Marilyn Geewax. Welcome back, Marilyn.
MARILYN GEEWAX, BYLINE: Hi, Michel. Great to be with you.
MARTIN: Always productive.
MARTIN: So why don't we just start by helping us understand what is this productivity measure? I think that a lot of people, you know, have in mind that episode from "I Love Lucy" where Lucy was working on the assembly line with chocolates...
MARTIN: ...And the line is speeding up to the point where she kind of can't keep up. And, of course, mayhem ensues. But what if you don't work on an assembly line?
GEEWAX: Well, that's what - last week, we really had two different reports that said different things about the economy. The one report - the labor report - got a lot of headlines because that was pretty disappointing. But we also had a productivity report from the Labor Department, and that showed that over the last six months, productivity's really been surging. A normal rate of growth of that is about 2 percent, and lately we've been seeing way more than 3 percent. So that's great. You think, well, gosh, we love to see more productivity. And that's a measure of how much your business is putting out. How efficient are you? And to be...
MARTIN: How much it puts out per worker?
GEEWAX: Per worker. Yes, the output per employee. And to be a very efficient business, you need to have good equipment, the latest stuff, you know, great computers. Just whatever equipment you need for your business, you want it to be the best, and you want to have skilled workers who know how to work with that equipment. So if we're seeing this surging productivity, that means businesses are able to do more with less. And so that's great for businesses. But, you know, so far, we're not seeing it really drift down into the employee's paycheck. And that's the thing that's been a little painful for the economy.
MARTIN: And is this traditionally the case, that wage increases follow productivity gains? Is that generally the way it works?
GEEWAX: That's what economists will tell you, is that when you have surging productivity, you'll have higher living standards. You're doing more with less. You become a richer country. And eventually that filters down. Economists still - that's their story, and they're sticking with it. But for a lot of people who have lost their jobs because the equipment is so much more efficient now that you've lost your job, for any given individual, it can be a pretty painful transition.
MARTIN: But can we just sort of - be sort of keeping it kind of on the bird's-eye level. Why is it if traditionally wage increases do follow productivity gains - because as sort of just thinking logically - that the same people are doing more and producing more, why is it that that...
GEEWAX: Is not happening.
MARTIN: ...Is not happening now?
GEEWAX: It seems that the economists - again, this is their story, and they believe it, and they'll all say it - is that it's just a lag factor, that eventually it will catch up. The problem right now with the job market is that we still have more than 10 million people who are unemployed. Nearly 4 million of those people are long-term unemployed. So it's such a huge labor pool. As businesses improve, as their demand picks up, as their efficiency increases - eventually they're going to want to hire more workers. But right now, why give anybody a raise? Even if your productivity has increased greatly, you don't need to share the wealth at the moment because people will still take relatively low wages. There's not enough competition for those workers.
MARTIN: Well, let's...
GEEWAX: So we really need to get those 10 million people back into the workforce to create the pressure on wages to help go along with that productivity gain.
MARTIN: Well, but let's - so let's ask the other end of the equation. You said that - you know, we said at the beginning that the jobs report was also disappointing. If there are these increases in productivity, does that suggest that employers...
MARTIN: ...May now be hiring?
GEEWAX: Exactly, Michel. That's what the hope is, that when we look at those productivity gains, you're sort of at this point when you're growing productivity at 3.6 percent, 3.2 percent as we've seen recently in the last six months, you know, there's only so much that you can get Lucy to wrap those chocolate faster and faster. Eventually, you need to add more than just Lucy and Ethel on the chocolate line. You're going to need a third person to come in and help boost that productivity even further. So the overall hope is that we will actually see the productivity numbers start to slide a little bit. That productivity will go down because you're going to start bringing in new workers, and they'll need to be trained.
So in the coming year, the hope is that wages will start to go up, that employment will start to go up. And maybe we'll slack off a little bit on these surges in productivity, but that overall it will start to match up better - that we'll start to get this evened out.
MARTIN: But let me ask you this, Marilyn. And if you're just joining us, I'm speaking with NPR senior business editor Marilyn Geewax. We're talking about last Friday's jobs numbers, which were disappointing. But also, another report that suggested that worker productivity is actually increasing and has been increasing over the last couple of months. You know, sort of two questions here. Is part of the productivity increase that employers are investing in equipment, which makes each worker more productive?
MARTIN: And if that's the case, does that necessarily suggest that there is a looming increase in employment...
GEEWAX: Right. Right.
MARTIN: ...You know, ahead? I mean, if you can invest in a piece of equipment that allows the same employee to do more...
GEEWAX: To do more, exactly.
MARTIN: ...Why would you necessarily progress? Do we know?
GEEWAX: Well, you know, the thing is, we've had very low interest rates for the last couple of years. So businesses have been able to go out and borrow money and invest in new equipment so that they're - they have better ways of becoming more efficient. So now they've spent the money. They've improved their - their capital, you know, has been infused into the business. And now they need people who are well educated to run that equipment. So when you think about, like, just a farm, for example. We do so much more now because farms are so much more efficient. You don't have to get out there with, you know, the ox and then - and your plow and try to - you have big tractors that can do that now.
So you can grow a lot more corn with far fewer people. And that's great because now we have cheaper food, and you can feed more people. And - but, of course, the person who lost their job that used to work on that farm, they're not so happy. They've lost their job. But what's coming next maybe, instead of having fewer workers working on those tractors, what if they're all run by GPS? You know, Google Driver will take over all those tractors. And now you'll be able to run your whole farm with, effectively, no employees.
GEEWAX: You'll have all this greater technology.
MARTIN: Do we know whether we are at such an inflection point or not?
GEEWAX: Well, that's kind of...
MARTIN: Or is this a short-term trend or is this a long-term trend?
GEEWAX: That's the big thing that everybody's looking at is are our technology leaps so great that we won't catch up. There will be this bigger lag. That things will happen that will have Google Driver take over truck driving and tractor driving and forklift operating, and lots and lots of people will be without work. Maybe we'll be a richer society because we'll be more efficient, but there will be an awful lot of people who need work.
So right now it's almost like economic historians are watching something unfold where they say don't worry, eventually it all comes out in the wash. A stronger economy will eventually produce more jobs. Just hold your horses. Everything will be fine in the long run. But if you're one of those 10 million people who hasn't had a job in two years, the long run isn't helping you. It's very tough to be one of those unemployed people looking at all this productivity growth and feeling like you're the person who's left behind.
MARTIN: Let's talk - in the time that we have left - about the, you know, the other report that we started with, the jobs report. The big picture is that employers added jobs at a slower than expected pace in January. It was the second month in a row that hiring has been disappointing. Is this a - and this also comes at a time when, you know, there's new leadership at the Fed. And they are expected to sort of pull back on the kind of stimulus that they've been pumping into the economy...
MARTIN: ...For these last few years as the economy has been very kind of, you know, anemic. So I wanted to ask, first of all, do we know why the jobs report was disappointing? Were there unusual factors, for example, severe weather, something that may have affected that? And are people starting to question whether it is the time to move off of...
GEEWAX: Change, yes.
MARTIN: ...The strategy that the Fed had been employing all these years?
GEEWAX: Well, you know, I've talked to so many economists, and I've read a lot in the last couple of days about this. And I don't think there is a clear-cut story as to what happened in the last two months. Yes, weather seems to have been a factor. Some retailers will say that, that it really hurt things like hobby stores and music stores, sort of the marginal things that, you know, on the weekend it's like, oh, it's really snowing. I'm not going to go there. So a lot of small businesses did get hurt by a loss of customers. But overall, was it bad enough that it really derailed the economy? No. It seems like there's something else going on.
And we're not entirely clear what that something else is. And that's what makes it really tough for the Federal Reserve to decide, is this the right moment to raise interest rates, to take the kinds of steps that lead to a drifting up in the interest rate? And some people say...
MARTIN: It seems it's so - it just seems like there's so much uncertainty. And it just seems that some of that uncertainty is really ideologically driven. I mean, it seems as though that, you know, various people want to sort of blame various factors depending on what their politics are.
MARTIN: You know, obviously, there are a lot of people who are still complaining about, you know, the health care law and the resources it takes to participate and so forth. And other people would say that that's certainly not true. It just - is there any kind of center of gravity around this?
GEEWAX: Here's what makes life so hard, Michel - is we are a giant economy. The United States has more than 300 million people. We have a trillion, trillion, trillion dollar economy, all sorts of things are swirling around, and it's hard in any given month to really understand exactly what's going on. You have to stand back and look over six months and see what happened in the past to try to understand where we're going. And right now, everybody wants to argue, there's a lot of politics - you know, is this caused by the health care changes, is this caused by - and honestly, the most honest answer is we don't really, really know what's going on.
Something seems to be slowing down the economy. It could be that it has to do with forces overseas and really has nothing to do with us. It could be that China and emerging markets are the real drag on the economy right now. So we're going to need more time to tell what's going on, but the things that we do know - the sort of big picture things that we are able to measure right now - is that productivity has been growing, and that's good for the economy in the long run. Wages are very flat because the economy - the labor market is very weak still. And interest rates remain at really historic lows. So you put all that together, there's a lot of slack in the labor market, but, you know, things are seeming to move in the right direction. So we'll see how this year turns out, but right now it's a very unclear picture.
MARTIN: Marilyn Geewax is NPR's senior business editor. She was with us here in our Washington, D.C. studios. As always, thank you, Marilyn.
GEEWAX: Oh, you're welcome, Michel. Transcript provided by NPR, Copyright NPR.