worker productivity

“Productivity is being able to do things that you were never able to do before,” according to Franz Kafka. By that measure, U.S. businesses seem to be failing at getting their workers to be more productive.

Worker productivity growth — the increase in output per hour worked — has averaged less than 1 percent per year since 2011 (see chart at bottom of story). With the first quarter of 2014, however, it has actually turned negative, with fewer goods and services being produced per hour than in the previous quarter. Employer output per hour, the yardstick for worker productivity, dropped at a 1.7 percent annualized rate in the March quarter.

Bloomberg Businessweek says one of the reasons is U.S. companies aren’t investing in their workers, i.e., helping them do things they “were never able to do before,” by avoiding or delaying spending on things like equipment, software and structures that workers need to increase output.

[contextly_sidebar id=”404e2b27f6d2ab68a8cdce8deeae539d”]”Whether it’s a computer or a forklift, workers are stuck using outdated machines,” according to Bloomberg Businessweek. “The average age of equipment in the U.S. is 7.4 years, the highest in 20 years, according to the Bureau of Economic Analysis.”

Relative to the output of workers (hours), the equipment, software and structures (capital) workers need to be more productive is not keeping up. The amount of capital  per hour worked fell about 1 percent in 2011 and 2012, according to figures from the Bureau of Labor Statistics, and analysts believe the numbers trended the same way in 2013 and early 2014, says Bloomberg Businessweek. The multi-year fall is unprecedented.

Companies do have the cash to spend, of course, with many balance sheets increasing in size and liquidity. But they are choosing to buy back stock or issue dividends to equity holders. And uncertainty about economic conditions is still weighing on business planning, according to the first-quarter Duke University/CFO Business Outlook survey. Sixty-four percent of the CFOs surveyed, as we reported in April, said “economic uncertainty would cause reductions or delays” in hiring plans and capital spending.

Some economists say the unusually harsh winter weather in parts of the United States reduced worker hours in some cases, adding to the drop in productivity. But the slowdown is not just a one-quarter trend, and businesses need to pay attention to the danger signal that slowing worker productivity represents. Said The Wall Street Journal: “In the short-run, less productive workers means slack gets taken up quickly, which could in turn create inflationary pressure and force the Fed to start raising interest rates sooner than expected.”

worker productivity

 

Source: US Productivity Stalls as Companies Invest in Buybacks, Dividends – Businessweek

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3 responses to “Weak Capex, Low Productivity Growth Linked”

  1. Let’s see if I’ve gotten this straight –
    Weak CAPEX = Low Productivity (defined as increase in product/hr. worked).
    So….if we increase CAPEX and let technology take the place of people, the
    “productivity” will improve.. leaving some analysts/economists feeling their
    models are “spot on) All the while jobs will be lost, corporations will put
    their cash to work buying back stock and/or giving dividends to their
    shareholders.

    What part of the 1% don’t you get?

    People need jobs. By the current interpretation “productivity/efficiency”
    translates to jobs lost, less money as a result to stimulate the economy and,
    of course, higher profit margins for corporations, greater cash coffers, higher
    dividends, more frequent stock buybacks.

    What part of 1% don’t you get?

    I’m tired of hearing about the 401k’s and Retirement Funds of various stripes
    that are in the Market and benefiting, and therefor the economy is fine…everything is fine. That is so much political flatulence it should be embarrassing, except of course to the 1%.

    Most of the people that are involved in those investments are passive and
    don’t realize the extent to which their investment is not only costing jobs but is inhibiting economic growth ..hopefully they would care if they understood and, more importantly they might step up to the plate and help address this fascination….this obsession.. from the company side and the shareholder side with “shareholder return”…unless, of course, they think more of increasing their personal wealth and, of course in the process, the oft mentioned “mortgaging our childrens’ future”

    Think about it!

  2. There has always from the dawn of time been an abundance of physical labor. Before 1820, global GDP per capita had never exceeded $700. After 1820 GDP per capita exploded upward and today is over $12,000 per capita globally. What made that possible? Capital goods – the single most important economic factor in producing a high standard of living is the amount of capital per worker.

    Capital goods make workers more productive and productivity is required to raise wages. Ideally, more and more workers should moving into capital goods producing industries. It’s only with production that living standards can improve.

    The march toward progress requires four factors: I property rights (the right to keep one’s just reward), II capital markets, III scientific discovery and IV high speed transportation and communications. These four factors were never all in place up until the 1800’s with the advent of the steam engine and telegraph. Then progress exploded like never before.

    Capitalism under the Four Factors unleashes productive forces unimagined when labor alone was in abundance but prosperity was nowhere to be found.

    Productivity is the key to prosperity for all of us. Why not usher in the day when workers are producing more and more capital goods – the means to prosperity – instead of denouncing capital goods? When the capital goods industry expands it hires workers away from consumption goods producers. Capex There is a direct correlation with the spectacular living standards achieved over the last 200 years and proliferation of capex.

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