Productivity

What is it?

Productivity is an economic measure of output per unit of input.

Inputs include labor and capital, while output is typically measured in revenues and other GDP


Productivity gains are vital to the economy, as they mean that more is being accomplished with less.

Capital and labor are both scarce resources, so maximising their impact is a core concern of modern business

How to stimulate productivity

Challenges

Interventionist supply side

Politics

Increased education and training

Improving transport and infrastructure

Better education can improve labour productivity and increase aggregate supply

Often there is under-provision of education in a free market, leading to market failure

Reduce congestion

Shorter commute to work has proven productivity

Phillip Hammond - "Now is a good time to invest in genuinely productivity-enhancing infrastructure, and to take advantage of low borrowing costs and our ability to borrow"

Trade Union Congress

Technology

General secretary, Frances O’Grady - We need investment in rail and roads, new homes, clean energy, investment in skills, education and fair pay = world class workforce

It’s the right thing to do for better jobs and higher wages. And it’s the best way to build an economy strong enough to compete in the global marketplace.

PWC Government and tax incentives in the UK are sufficient to encourage UK tech businesses

Job enrichment, empowerment, motivation = less labour turnover and absenteeism rates = increased output

Efficient software enables more output to be generated in less time = productive

Time lag

National Centre on the Education Quality of the Workforce - 10% increase in workforce education lead to an 8.6% gain in productivity

Stockbroking company may introduce an algorithm for its back office that eliminates a key task that was previously performed manually.

Empowerment - Employees who have the resources and flexibility to do their jobs more efficiently are likely to boost productivity; this frees up management's time to focus on more critical business functions.


Not in a politicians interest due to electoral cycle

Unlikely to see the benefits in their term

UK electoral cycle every 5 years and US every 4 years

Investing in education is a generation transition - would not see effect

Structural limitations

Government's role?

Arguably down to businesses to drive productivity (is it gov role to incentivise businesses)

Government need to educate corporates on tax relief programmes to encourage spending on people and infrastructure

Cost

Sociocultural

Hard to increase productivity when those unemployed gain benefits

Hard to encourage productivity when consumers have access to easy money

Consumers are driven by extrinsic motivation (money) but don't want to work for it - easier to just borrow - access

GFC companies needing to pay their workers higher wages - have to borrow from CB?

Tax relief for corporations is hard as government is fiscally constrained - they need the tax take

Social Welfare System

Flawed system - does not incentivise those unemployed to go out and work

Businesses are unaware of tax relief incentives

Expensive to invest - outcomes are also somewhat uncertain

Demographic limitations - UK ageing workforce hard to make productive - not technology savvy

Robotics and AI

Hard to change worker mentality

Shortage of STEM skills

The world changes so quickly - development of robotics could make workers redundant

Yes easier to grow a credit bubble

Immigrants drive nationalistic fervour - won't go out and work as 'immigrants are taking jobs'

Austerity measures - Conservative UK - reduce government spending and increase taxes, in an effort to reduce their budget deficit

Germany

Good relations between employers and employees

Good relations between the government and trade unions allow fair wages

Kept people employed following the GFC despite other rich countries such as UK and US laying off workers

Export based economic model

Culture - saving economy