American Productivity

Report: U.S. Workers Are Most Productive: "Only part of the U.S. productivity growth, which has outpaced that of many other developed economies, can be explained by the longer hours Americans are putting in, the ILO said. The U.S., according to the report, also beats all 27 nations in the European Union, Japan and Switzerland in the amount of wealth created per hour of work -- a second key measure of productivity." -- AP

Cool. I'm not at all surprised by this. Here's the original study from the International Labour Office. I'll have to read it in detail. I'm sure there are many interesting bits in there.

We have to be careful in reading this report. Often labor productivity measures are calculated by taking the GDP and dividing it by the number of employees and then comparing it temporally or geographically to find growth in one economy or to find distinctions among economies. Since the U.S. population consumes a great deal and it saves very little and since its financial markets have attracted (up to 2005 I believe) more capital than any other country in the world, the U.S. economy and GDP are inherently large. However, not all this greatness can be attributed to individual U.S. worker productivity. In other words, the system should get the badge of honor. However, even here, some skepticism is due because there are various measures of systemic goodness. For example, a measure of goodness is the overall cost of production and transaction costs, which are still quite high in the U.S., partly because simple social goods such as education, transportation and healthcare are provisioned in a manner that raises overall system and transaction costs.

Posted by M. Mortazavi on September 18, 2007 at 05:44 PM JST #

M. I'm not sure what you mean by "social goods such as ... are provisioned in a manner that raises overall system and transaction costs." It sounds ideological. Also, while it is tempting to take into account all that foreign capital attracted by the U.S. economy, we need to consider too that it has been attracting foreign capital in massive quantities for decades, that perhaps the trade deficit, productivity and many other aspects of the American economy are intertwined. I've seen, too, numerous explanations of the low American savings rate based on the measurement being flawed, but too one must understand that Americans have, reasonably, considering the performance of the economy over the last several decades, counted on better opportunities in the future as a form of savings.

Posted by Nico on September 18, 2007 at 09:32 PM JST #

Nico -

What I'm saying has nothing to do with any ideology.

GDP in the US (as elsewhere) is calculated by summing wages paid with no regard to why the wages are being paid and what the wages paid accomplish. GDP calculation is, by definition, blind to the architecture of an economy.

Now, let's break the GDP down and look at some of its components.

Wages paid include wages paid for work done to meet consumption habits or needs.

So, for example, all wages paid to maintain American consumption of cars and fuel are included in the calculation of the GDP and then this shows up as higher "productivity".

While some of that cars-and-fuel consumption is necessary to accomplish real productive work, much of it is wasteful, not only of cars and fuel but of time, energy and real productivity, and yet all the wages spent to sustain it count as GDP.

Americans consume cars at a higher rate that any other society in the world because Americans don't have good public transportation. (I have consumed two cars in the last 6 years and I'm not even leasing.)

When we transport ourselves to work or drive to find a restaurant or go to the local grocery (1 mile away) for a gallon of milk, the cost of transporting ourselves becomes part of the transaction cost of selling and buying labor, food and groceries.

The big question is whether there's a way a global transaction architecture can arise from an existing economy such that it will reduce transaction costs from the prevailing ones ... Some Nobel laureates (e.g. Douglass North) believe that question to be the most important question in economics and economic history.

Just because we have higher transaction costs due to wasteful consumption and pay more wages to support that consumption does not mean that we are more productive, in the true sense of productivity, unless we reduce the meaning of productivity to the abstraction that is the GDP. Of course, if we did so, we succumb to the conventional view of productivity, which is part of the conventional ideology.

Posted by M. Mortazavi on September 18, 2007 at 10:23 PM JST #

Oh, I think there are many ways to cut this data. I'm quoting a news article here, but I also have a link to the full report. And I bet the full report is more subtle and sophisticated than the news article. :) It's part of my upcoming reading for sure. I also agree that American "productivity" has to take into consideration the entire system, not the individual.

Posted by Jim Grisanzio on September 19, 2007 at 06:55 AM JST #

At the risk of pissing someone off, I will say "darn right were the most productive" but in the same sentence I'll say "but at what cost?"

I have both Asian and European friends who will gladly tell you we in America work harder, longer hours, but at what cost? Many of us are over-weight. Many have poor health habits, etc.

Being productive isn't all it's cracked up to be.

Posted by David Meyer on September 21, 2007 at 12:48 AM JST #

M., wages earned must go somewhere, and consumption is as good as a place as any. You'll say that we must invest more, but consumption is a broad category that masks quite a bit of investment. Book buying is consumption, so is Internet access, but any learning we do by reading, off-line or online, is investment -- all education is a form of investment, because what matters is what's in our heads, not what capital we own. Some blogger once said that if we swapped the population of the Sahara desert with that of the U.S., leaving everything else (capital, etc...) where it is, within ten years the economic situation of the two places would flip.

Now, let's talk about cars, since you bring up the subject. Cars are a \*huge\* part of the American productivity story. The U.S. has very low population density, mean and average, so efficient public transportation is a non-trivial affair, almost impossibly unaffordable outside a few large and _dense_ American metropolises, like NYC. So we must have cars, and they enable us to go places, like where we work, where we live and where have fun. They also enable us to build the buildings (e.g., houses) we want, where we have space for them. So Americans have many, many more square feet of living space than, say, Europeans do, both mean and on average, which too affects productivity -- and consumption rates (we can store more, therefore we can consume more non-perishable items).

"Consumption" really is too broad a brush. Some consumption, for example, enables more consumption, which pushes relative productivity up, since people have to earn more in order to consume more. For example, iPods -- you spend, say, $200 on one, but by itself it's useless: to benefit from it you have to buy (consume) songs, which you have to earn. Similarly with cell phones. In fact, cell phones, no doubt, are categorized as consumption, but anything that enables communication is, in my mind, an investment. Consumption is not the bane of productivity. The idea that consumption is bad is common to puritans, socialists, and even objectivists -- it cuts ideological lines, but it is also quite clearly wrong.

Posted by Nico on September 21, 2007 at 06:44 PM JST #

Also, about your comment about "global transaction architecture" that can reduce transaction costs, well, we have one! It's the Internet. And it does reduce transaction costs, including ones related to transportation. I will wager that the number of Americans, both in absolute and relative terms, working remotely, from home, via public networks is and has been rising, and will continue to rise, particularly as the cost of transportation goes up. Delivery services (e.g., UPS) are also cutting transportation costs (though they increase aggregate demand, and therefore, absolute costs, no doubt). Big box stores too create efficiencies (even if I don't much like them). Productivity and consumption are deeply linked, and all those improvements in the infrastructure that enables consumption are productivity enhancements.

Posted by Nico on September 21, 2007 at 06:51 PM JST #

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