Does the BLS productivity report mislead us? What really drives productivity?
When the next quarterly Productivity and Costs report from the U.S. Bureau of Labor Statistics is released on August 8, pundits will again congratulate working Americans for being among the most productive in the world. That’s what the numbers have been saying. But coming on the heels of the August 3, 2012 Employment Situation report, which is likely to reveal another month of anemic job growth and continued high unemployment, they may again raise the question: Shouldn’t there be more jobs for our very productive people?
The media uses these emotional issues to grab the attention of a big audience, arousing dismay, outrage, and blame. Who’s excited by an explanation of the statistical methodology behind the numbers? For the average person the technical description is boring, and beyond our generally meager math skills. Here’s what the BLS says:
Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked of all persons, including employees, proprietors, and unpaid family workers.
Did your eyes glaze over? They divide an index by an index of GDP divided by the number of hours people are supposed to have worked—which is inherently shaky data anyway. I’m kind of lost.
In the end, however, it’s output and hours. If GDP goes up faster than hours worked—“productivity” goes up. When GDP slips and hours stay the same—“productivity” goes down. Fire thousands of people, leaving the rest to get the same amount of work done—“productivity” increases. Add automation in place of people—“productivity” goes up.
For manufacturers, productivity has meant capital investment
While people in this country do work very hard, other forces also drive productivity. One of those is capital investment.
That’s exactly what manufacturers are choosing now to get ready for growth. They know it takes automation to compete with low wage countries. They’ve been taking the cash generated by an improving economy and hiring technology rather than people.
Sales of machine tools, robots, and other labor saving technology have soared. In May, year-to-date orders for metal cutting and forming and fabricating equipment were up 12% compared to 2011, according to the Association for Manufacturing Technology. Robot industry group RIA reports that in the automotive industry, robot orders were up 42% in the first quarter over Q1 2011. In food and consumer goods industries orders were up 31%. Global robotics companies like Mazak and ABB report that 2011 was a great year for sales all over the world, especially in Asia. Material handling equipment orders grew 16.3% in 2011 and are forecasted to grow up to 9.0% in 2012, according to the Material Handling Industry of America.
Paradoxically, this increased automation is creating a workforce shortage. While the pool of potential employees is large, manufacturers can’t find enough technicians, programmers, and workers skilled in operating advanced equipment. There are plenty of people, just not the right people. This is not only in the United States. People with advanced technical skills are in short supply all over the world, including in China.
In the end, while manufacturing needs more skilled workers, it needs much fewer unskilled people, creating another conundrum. Who is going to buy what we make? Production requires consumption. Remember one of the brilliant effects of Henry Ford’s $5 day? Ordinary people could afford to buy his Model T.
A question remains—how should we balance shared prosperity with efficiency and profits in an economy that will never be the same?
Karen Wilhelm has worked in the manufacturing industry for 25 years, and blogs at Lean Reflections, which has been named as one of the top ten lean blogs on the web.