Interesting new economic tidbits...

Odd view of the statistics. If output falls, but number of hours worked falls faster, productivity goes up. The US productivity statistics are in fact biased, because the increases came from falling hours, not increasing hours. The French and Norwegian figures are in fact even more flawed.


Increasing hours DECREASES productivity. If a worker works 6 hours to produce $100 of goods, and then works 7 hours to produce $110 worth of goods, productivity goes from $16.6/H to $15.7/H.

Typically, increased hours over the median produce a sublinear increase in value, not a superlinear increase.

In other words, if someone works 10% more hours, those extra 10% suddenly don't get more efficient. Efficiency either stays the same (you produce widgets at the same rate with the same cost) or goes down (you are more tired, watching the clock, taking more breaks, etc)

Therefore, the way productivity is counted, the labor productivity would go down with more hours worked. It is when you "do more with less" that productivity goes up. The only way productivity can go up if hours worked goes down is if the work becomes more efficient because of automation. Simply working an hour less yields advantages because people will goof off less, but it doesn't "scale" like productivity increases that come from technology.


In other words, if I work 10% less hours, but because I am at the office for a smaller amount of time, I take less breaks or browse the internet less, then I end up producing about the same amount of stuff, but using less time.

The only time this breaks down is when the hours worked becomes very small. Typically, time is lost getting to work, getting "into gear" when starting in the morning. Imagine working 4 hours a day, but commuting to home in between on 2 hour breaks. Each of the hours worked (arrive at 9, work till 10, go home, arrive at 12, work to 1, go home, arrive at 3, work till 5, go home, etc) won't nearly be as productive as if it was a contiguous cycle.


Productivity statistics, as I explained in another thread, are filled with bogusities. Simply put: the vast majority of jobs in western countries are in the service sector, and productivty measurements of service sector jobs are voodoo economics at best.
 
Well in yearly terms the average US worker is more productive... I dont think the diffs in yearly tween us and french are that much tho and of course any stats can be taken with a grain of salt but I doubt theres any real serious diffs tween western modern world workers... Id maybe say the Germans and Japanese have a bit of an edge...
 
I agree. First, I don't trust economic statistics very much, especially productivity, but my "intuition" would tell me that the germans and japanese are more efficient in manufacturing but the US is more efficient in services.

My reasoning is that, much of US manufacturing has been outsourced overseas, and it is very labor intensive, whereas the Japanese apply more automation, almost as a religion. Now the differences aren't that large, but the edge goes to Germans/Japanese, because, if you have a larger per capita manufacturing industry, you're going to spend more on making it efficient because it is such an important part of your economy.

However, the IT revolution happened in the US first, had the greatest amount of spending, and due to the structure of the US market, there is far more aggressive technology use in retailing, distribution, etc. See for example, Walmart's use of IT vs Japan, which had a very poor IT usage level within corporations, and Keiretsus limited competition within the retail market via oligarchies, making Walmart-like competition on distribution efficiency a non-issue.

Or take JetBlue airlines, whose entire company is run off of a few NT servers, with almost all customer service reps/ticket agents working from home on DSL lines using Voice over IP and an intranet. IT became a religion here, although the Eurozone started catching up near the end of the .com boom.


I'll give you a personal example. I hired a new accountant to do my finances/taxes last week. He charges $90/hr, and I went in for a 1 hr consultation. After that, I never need to physically use his time again. He said he prefers all his clients to conduct transactions with him electronically.

He gave me a bunch of PDF Forms, which I electronically fill out and submit to his websitel. In addition, I can upload electronic bank statements, and other information to him. It's almost entirely paperless. As a result, he handles more clients now, and he charges less. If I need to physically come in, or submit paper hardcopy, he charges $150/hr.

A better example would be Stanford Medical Center. Once I signed up into their computer system, everything is automated. Don't need to fill out any forms ever. Whenever I get proscribed medicine, they automatically fax the prescription to my preferred pharmarcy, etc. I don't need to call anyone, or pay anyone, or do any paperwork period. Even my medical results from blood work are available online.

Also, many local stores and restaurants allow you to order via web and pick it up in the store, or have it delivered.


To be honest however, what the IT industry has done so far is only 5% of what's possible to do with automation. There's still a huge lack of integration between businesses.
 
What you're missing Democoder is the fact that productivity is not only a measure of how many "units per hour" a worker creates, but also the amount of cost for each "unit per hour".

For instance, using your example of your accountant. Even if he charged the same amount of money, technology allowed his productivity to apparently skyrocket because of the fact that he can now handle all transactions electronically. Why? It reduces his costs and time in terms of preparing statements, purchasing paper, making phonecalls (email now I'm assuming), etc etc etc.

Even if he didn't increase the amount of clients and transactions he made on a daily basis, his productivity increased due to the fact that his initial costs significantly decreased due to technology. In regard to this particular situation, technology has most certainly manifested a marked and positive change in his measured productivity.
 
Natoma said:
What you're missing Democoder is the fact that productivity is not only a measure of how many "units per hour" a worker creates, but also the amount of cost for each "unit per hour".
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Um, I don't think DC is missing anything.

His exact point is that his accountant is more "efficient" due to technology. It's just that you can't trust "economic statistics" to bear this out, because "efficiency measurements" in the service sector are not relatively simplisitic as say, manufacturing efficiency measurements. It's easy to measure "units produced per man-hour or labor" expended.

It's not easy or striaghtforward to measure service efficency because, there is not only the concept of "more work per labor hour", there is, for one example, the added concept of "new types and levels of work offered....."

My own personal example: my firm as a whole prepares tens if not hundreds of THOUSANDS of international tax returns annually. To a large extent, there is "automation" with the service of tax retrurn data collection, preparation, review, etc.

It might sound simple to measure the "efficiency" of tax accountants on one hand, just by saying "how many tax returns per man hour" can be prepared at any given time. But it's not that simple: pushing down the majority of tax reutrn work on "lower staff level" individuals due to automation, allows upper management to concentrate more on OTHER value-add tax related client service needs. (More detailed tax planning, etc.)

How does one factor such things into efficiency?
 
I'm not missing anything Natoma. I merely pointed out that "Americans working longer hours" would lead to a bias towards LOWER PRODUCTIVITY FIGURES, not higher, as Pax claimed.


What you seem to be missing however, is the measurements related to productivity in the service sector are fraught with error as every economist knows, and the US Government admits.

You cannot measure changes in cost unless you know what the baseline cost was, and knowing what the baseline costs were, for say, one website, one dental visit, one bookstore purchase, or one civil court case, are troublesome.

Some industries can track this efficiently, e.g. McDonalds has a good idea how much a burger costs, and JetBlue has a good idea of how much it costs to acquire one customer and ship from A to B.

But even that is fraught with error. JetBlue's "cost baseline" is heavily dependent on the cost of aviation fuel. If the price of oil fluctuates, (say down), their "cost per unit" goes down, but no fundamental efficiency changed in their organization. Only the costs of the inputs changed.

Rather than sit here and argue with me, because you are heavily invested into the "economy's been in recovery since 2001" Newsweek viewpoint, why not go and look up the controversy over measuring productivity yourself.


I am not claiming there hasn't been any productivity improvements. In fact, I just gave good examples. I'm saying that the gains are overestimated and the "New Economy" productivity story is overhyped.

I work in the software industry, and despite exponential increases in the capital tools used (faster CPUs, more memory, more storage, larger monitors, etc) it still takes the same time to develop a software application (maybe even longer), and despite better development tools, it infact, is more costly today than it was just ten years ago. Some of that is due to an exponential increase in complexity, but much of it is due to the fact that the creative process in engineering hasn't been sped up at all, and human's are just as prone to bugs, which must be extensively tested and fixed, as they ever were.
 
Joe,

Simple, you don't try to measure efficiency directly. You measure the overall output of the firm as a whole on a year-on-year basis, i.e. ROI, which is directly affected by efficiency.

If you try to directly measure efficiency, you'll find that it is almost impossible. No company ever takes efficiency gains and doesn't use them to translate into productivity gains unless it's a poorly managed firm. If you reduce your costs per transaction, then you either load up on transactions or you pass on your savings to your consumers, or both. It allows the firm to generate greater volume per hour, but maybe not necessarily more revenue, but certainly more profits as a percentage of revenue. I think we've seen this scenario over the past few years in the stock market as well.
 
Democoder,

I didn't disagree with your post about americans working longer hours reducing our "output per hour" figures. In fact I agreed with that and even stipulated that point in the prior thread re: this discussion. I disagreed with the conclusion that productivity measurements are difficult to ascertain.

You give examples of a website, a dental visit, a bookstore purchase, civil court case, etc. While troublesome, they are not necessarily difficult measurements. Every firm plots not only their expenditures and investments on their tax filings, but their profits as well. Taking a year-on-year outlook at these numbers would automatically give you a rough estimate of change in ROI per dollar, whether it be positive or negative.

I agree that there are some industries that are anathema to productivity measurement, such as medical care (how does one measure productivity for instance if it still takes the same amount of time to perform a surgery. is it the fact that less and less lives are lost or complications are formed during surgery?), however your assertion that the government admits that productivity figures are fraught with error and thus faulty to use is erroneous in and of itself. Budget projections are faulty as well, as are quarter-to-quarter measurements of GDP growth (be it positive or negative), for example. All of these are "fraught with error" by themselves in a fishbowl, not in context, yet they provide rough estimates of where the economy is going when put together. Usually they are revised in the coming years as more and more data comes in. For instance much of the gains during the late 90s were estimated in the 5% range, yet when actual figures were released in 2001 and 2002, the figures for growth on average were actually in the 4.5% range, still far higher than the 2% historical growth average of this nation.

"Fraught with error" is one conclusion when the figures are taken in isolation. Using that "faulty" data in conjunction with changes in employment, stock market profits, etc, however, is the way in which to place the figures into context, and that is how the government uses these figures. I myself have admitted that there are issues with productivity figures, but that doesn't decrease the value of these figures within context of their usage.

I work in the software industry as well, but I think you're looking at this in the wrong light. The increases in technology may not have decreased development time for each program as a measurement of the bytes you type per hour, but it has certainly changed the overall development time. 10 years ago you didn't have email, cellphone use, a commercially mined internet, the ability to compile programs within seconds as opposed to minutes or hours, etc etc etc.

p.s.: it was businessweek, not newsweek. shows how much you know. ;)
 
Natoma said:
Joe,

Simple, you don't try to measure efficiency directly. You measure the overall output of the firm as a whole on a year-on-year basis, i.e. ROI, which is directly affected by efficiency.
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ROI != efficiency. Don't get your point. It's even dangerous to try and loosly tie them together.

My firm can be the most "inefficient" out there, but the "service" provided might be extremely high margin.

If you try to directly measure efficiency, you'll find that it is almost impossible.
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Pretty much DemoCoder's point (wrt Service economies.) That doesn't keep people from trying, and making ill-conceived "efficiency comparisons" with other (manufacturing) economies.
 
I never said ROI is the same thing as efficiency. I said that ROI is affected by efficiency. The "inefficiency" of a company should not be measured in a one year basis only, which is why I said year-on-year. If a firm remains "inefficient" year-on-year, then its changes in productivity in part as a measurement of ROI year-on-year, will remain roughly the same.

However, if that firm increase its yearly efficiency levels then that measurement of productivity (which is different than efficiency mind you and what I was debating with democoder in that other thread. productivity, not efficiency. for instance, you can increase your efficiency but not your productivity. it depends on how a firm utilizes the efficiency increases) will inevitably increase [if it's a well managed firm], even if the profits and/or revenue dip due to cost savings passed on to consumers.

As for the comparisons with other economies, I don't think it's a good idea. However, within the bubble of each individual country, that doesn't invalidate the findings either.
 
Natoma said:
I never said ROI is the same thing as efficiency.
Click to expand...

I know, which is why I said it's dangerous to even loosely tie them together.

I said that ROI is affected by efficiency.
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And ROI is affected by a "zillion" other things, so trying to get some handle on efficiency based on ROI is pretty futile.
 
Joe DeFuria said:
And ROI is affected by a "zillion" other things, so trying to get some handle on efficiency based on ROI is pretty futile.
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Who's trying to measure efficiency? I've been debating productivity with Democoder, which as I stated is different than efficiency.
 
Natoma said:
Who's trying to measure efficiency? I've been debating productivity with Democoder, which as I stated is different than efficiency.
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DemoCoder has been debating both (as they relate to one another.) Not sure where or why you decided to ignore the efficiency aspect of the debate.

The entire debate is about the "false" pretense that the U.S. is more productive, "But only because [the U.S.] works more hours. " (Implication being that the U.S. is inifficient in terms of work force.)
 
Joe DeFuria said:
Natoma said:
Who's trying to measure efficiency? I've been debating productivity with Democoder, which as I stated is different than efficiency.
Click to expand...

DemoCoder has been debating both (as they relate to one another.) Not sure where or why you decided to ignore the efficiency aspect of the debate.
Click to expand...

I haven't ignored the efficiency aspect of productivity. On the contrary, I've been concerned with how productivity is affected on the macro-economy as opposed to the micro-scale of efficiency measurements. I have no disagreement wrt efficiency on a per worker basis. I disagree with the productivity changes wrt macroeconomics.

Joe DeFuria said:
The entire debate is about the "false" pretense that the U.S. is more productive, "But only because [the U.S.] works more hours. " (Implication being that the U.S. is inifficient in terms of work force.)
Click to expand...

I wasn't debating that part. I actually made that assessment, wrt the US only being more productive because we work more hours as a false statement, in the prior thread.
 
These numbers are good enough to give a general comparison. I dont think France is that much more a manufacturing economy than the US. However if measuring these things is not possible at all then the often made judgement about those overly 'socialist' and 'poor performing' mainly european economies in the forum may be as false as the pretense I quoted from the article.
 
Pax,

The reason that the french economy, and european economies in general, perform poorly wrt the US is that there are structural inefficiencies that severely impede productivity on a macro scale. The amount of subsidies that go to government owned institutions as opposed to funneling that toward private investment and subsequent growth are one reason. Another are the exorbitantly high taxes that fund overly lavish social programs, the high cost of firing underperforming employees, the high cost of 100% pension/health care fund coverage, etc etc etc.

Frankly the ineffectiveness of the EU is built into its very existence, which is why even if they produce more per hour than we do, their economies are still in the crapper compared to ours. It will require much whittling away of their socialistic tendencies to remove much of the structural problems plaguing their economies.
 
Hmm and in Canada we are also a lot less 'socialist' than in the EU and yet our deficits are worse per capita... You could make the argument some Euro nations bought early into the leasure of less work that technology is slowly giving us. Any country that runs a deficit could be argued that way but also could be argued we are letting too much $ flow into too few hands which doesnt always find its way back into the investment economy.

But the overall issue is that Europe is doing ok considering they are integrating the impoverished east. I can only wonder what would happen if the US assimilated Mexico. Heck I feel more secure about investing in Europe with long term prospects as their market and economy to my eyes seem more stable.
 
Pax, our deficit is that in high because Trudeau and Mulroney government did spend like assholes and for no good reasons. Cretien did correct that, but by cutting money transfert to the province, and now we pay for that. The US should be careful, tax cut right now, big debts later, but since they can always choose not to pay anyone ;)

Democoder, the question is why are americains making their employees work that much if it's not productive (which I agree with you up-to a point). Some economists sure are not doing their job correctly. But I guess that's just another contradiction of that great country.
[/b]
 
Pax, our deficit is that in high because Trudeau and Mulroney government did spend like assholes and for no good reasons. Cretien did correct that, but by cutting money transfert to the province, and now we pay for that. The US should be careful, tax cut right now, big debts later, but since they can always choose not to pay anyone
Click to expand...

Um, not quite. The bulk of the deficit arose because of the leadership of John Crow at the Bank of Canada in the early 1990s pursing his policy of 'price stability'. For the layman, that's zero inflation. Chretien didn't do much to reign in the deficit except getting Crow out and raiding Employment Insurance. Martin as a financial whizkid is totally undeserved.

As for the topic of productivity, of course it goes up. As more workers are shed, those that remain usually have increased workloads or else they themselves become downsized. I fully expect to see more cases of stress-related illnesses in the future.
 
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