Some fresh sinew seen in US productivity
Carl Thor is a rare bird among economists; he's an optimist on productivity in the United States. Mr. Thor, vice-president for measurement of the American Productivity Center, Houston, says he believes the nation may have turned the corner on its three-year decline in productivity.
"I have become immensely more optimistic in the last three months," he said in a telephone interview. One reason is a turn in the statistics. The second quarter of this year marked the second consecutive period of strong productivity gains for the private business economy. Productivity is usually measured by the amount of goods and services produced per hour worked. As a rule, increased productivity means a higher standard of living for a nation's people.
Beyond that statistical trend, however, Thor sees "a great increase in awareness of the problem of productivity -- and companies are doing something about it."
His cheeriness contrasts with the general gloom regarding the topic in Washington and in some academic circles.
Thor's productivity statistics are somewhat different, in that they include both labor input and capital input. A new robot naturally increases productivity, just like a new smart way of producing more widgets with the same amount of labor. In any case, the American Productivity Center's statistics show an increase of 1.5 percent in productivity at an annual rate in the second quarter of this year, and 4.3 percent at an annual rate in the first quarter.
"Even with economists predicting little or no growth in the second half of the year, these two quarters of increased productivity should lead to an average , overall gain for calendar year 1981," Thor added.
Normally productivity gains go up and down with the business cycle. In a recession, employers are reluctant to lay off workers as fast as the fall in orders for their products or services. So productivity slumps. In an economic expansion, the opposite phenomenon occurs -- employers hire new workers or expand factories less rapidly than their sales improve. Thus productivity rises.
Thor suspects, however, that if the economy has slipped into a modest slowdown -- as recent statistics indicate -- there will be less of a productivity loss than usual. That, he explains, is partly because high interest rates have prompted businessmen to keep their inventories tight. It costs too much to finance flabby inventory levels. So any downturn in orders should prompt less of an inventory swing and, in turn, less need for reducing output.
A second factor is that the movement in and out of recessions during the last decade, combined with the uncertainty of high inflation, has prompted businessmen to pare down on any surplus labor. Corporations are tightly manned by comparison with boom times earlier.
A third point Thor makes is that with today's high interest rates, corporations have already been showing restraint in capital spending. So spending on new plant and equipment -- which usually boosts productivity -- should show less of a downturn.
Some economists have found the nation's poor performance in productivity to be something of a mystery. Thor admits it is sometimes difficult to separate the causes for productivity changes from other statistics on the economy. But the Houston Center consults with hundreds of major and smaller corporations on productivity questions and, as a result, Thor has concluded that the main reason for the productivity slump in the 1970s was the jump in energy prices. Much equipment, built for the cheap-energy era, became obsolete and unusable because of its high costs.
Another important factor, he figures, was government regulation. It required corporations to devote more effort to improving the environment and safety levels, which though possibly desirable, does not increase the output of goods and services.
As for the future, Mr. Thor sees several favorable factors:
* Most companies have by now adjusted to a considerable extent to higher energy costs. Similarly, they have made many of the expenditures needed to meet environmental and safety regulations, and standards may not jump so fast in this decade.
"The government environment is definitely better," he says.
* Robots are spreading rapidly in industry.
Thor cautions that manufacturing accounts for only 28 percent of the nation's output. So the effect of robots on national productivity is less than might be immediately imagined.
* Computers are increasing ofice productivity. Word processors, for instance , step up the output of secretaries enormously.
* Corporations, especially large ones, are putting more effort into modern management techniques that boost productivity by improving the attitudes of employees. Japanese competition is one reason.
These techniques are based on the fact, as Thor put it, that "you hire employees' brains as well as their arms and legs."
There remain productivity problem areas, however. Thor says middle-size companies are not using the new management techniques as much as they should. Big ones can afford specialists. Small ones often automatically involve their fewer employees in the enterprise's activities with heart and soul. But the medium-size ones don't believe they can afford management experts.
Also, he believes municipal and state governments have much more to learn about productivity. And he questions the adequacy of corporate research-and-development spending.
Nonetheless, he says, "total factor" productivity has now climbed back to 1977 levels and is on the way up again.