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