Workplace Productivity is Better Than it Seems

The August productivity numbers for the U. S. didn’t look so great, dropping by 0.5% in the second quarter, and are running at only half the historical rate. Since rising standards of living are dependent on higher productivity, that’s not good news.

But wait a minute… maybe things are better than they seem. As technology’s penetration into the workplace advances, the old ways of measurement might not be accounting for new types of advances.

Technology should be very good for productivity, because the cost of additional units (e.g., software) is low compared with physical products, enhancing the numbers, i.e., companies can sell more stuff using less labor. And better business processes are also adding to the gains by gathering data using technology instead of humans.

A typical process is outlined in a recent article in The Wall Street Journal about sharp efficiency gains through the use of RFID tags. Some examples:

• Macy’s now asks suppliers to place RFID tags in their products shipped to stores. Once in all their products, the time to take inventory should drop by over 95%.

• Delta Airlines has installed RFID tags on their onboard oxygen generators. It used to take 8 hours to check the expiration dates; it now takes two minutes.

These sharp reductions in low-skilled labor make for higher productivity, better data collection and faster inventory turns, allowing businesses to grow faster. They can then hire more high-level employees to staff these companies. Ironically, this hurts productivity in the short term as adding employees with more or less the same sales lowers the ratio (and laying off employees, say in a recession, temporarily increases the rate).

To me it seems that we’re using old tools to measure a new economy. When I look around and see the country’s unemployment rate at under 5% and many of our customers feeling very positive about their businesses and expanding, it makes me feel good about productivity in particular and the U.S. economy in general. These new technologies will only help to increase our productivity rates, raising the standard of living for all of us… despite what the official numbers might say.

Frank Kenna III
September 7, 2016

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