Are More Productive Workers Hurting U.S. Jobs?

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Ho New / Reuters

In discussing our unemployment problem today, WSJ‘s Real Time Economics points to an important issue: worker productivity. The piece explains that, with more productive workers supporting a growing population, the American employment rate and living standards are falling. Indeed, productivity has become a bad word in this economic downturn, but should it be? According to the WSJ:

The smaller the share of the population employed, the smaller the economy’s potential to lift living standards through productivity gains. Indeed, productivity — companies’ ability to keep squeezing more production out of each hour worked — is transformed from the prime driver of prosperity into a force keeping people out of work. Profits rise, but the ranks of the unemployed don’t shrink.

Many think technology gains are stripping the U.S. workforce of badly needed human jobs. And the U.S. has it worse than other developed countries, since, as measured by economic output per worker, U.S. workers are the world’s most productive. That’s partly because Americans work longer hours, technology investments have increased their rate of return, and American companies are more competitive and efficiently organized.

But in a globalized workforce, lowering worker productivity isn’t a realistic way to increase jobs. For years, manufacturing was the focus of U.S. business investment because it brought about higher rates of growth. Technology investments in the auto, electronic, and factory equipment business, for instance, increased production rates and quality, which in turn made the U.S. factory worker more valuable. The manufacturing industry made these investments to keep up with other countries competing in the same sector. For decades productivity growth has been roughly 25% higher in manufacturing than in other sectors of the economy, even though the sector has been shedding less productive U.S. jobs.

Meanwhile, other sectors of the economy — finance, healthcare, and retail — have been the big employment drivers in recent years. But because those industries aren’t tradable (meaning their services that can only be consumed at home), they haven’t been forced to compete with other countries on investing in productivity growth. And so, in the wake of the Great Recession, those sectors aren’t adding to U.S. jobs; they’re dragging down the economy. That’s why, as Michael Schuman laid on this blog a few months back, increasing productivity growth shouldn’t be viewed as the enemy of this economy, but rather the solution.

The question is how to get there. Innovation and technology investments in non-tradable and tradable sectors will be key, but they require a workforce with the higher skills needed to fill higher-value jobs. Long-term that means better education for the U.S. workforce. But in the meantime, Manpower President Jonas Prising says it requires bigger investments by U.S. companies to train lower-skilled workers who offer “a teachable fit.”