Productivity In Addition To The Cycle
(As an update, my breakeven inflation volume is yet beingness edited; it volition endure at to the lowest degree a few weeks earlier the ebook is ready. Since in that place are no formatting issues – different the SFC models volume – it volition seem equally an epub equally well, so it volition endure on the Kobo, Apple store, etc. )
Productivity – What is It?
There are 2 commons notions of productivity – labour productivity, in addition to total element productivity.Labour productivity is the easiest to bargain with. It is the notion that the output per lx minutes of workers should rising over time. That is, if nosotros assume that the total number of hours worked is unchanged from twelvemonth i to twelvemonth two, the increment inwards existent output is due to the increment inwards labour productivity. In general, tendency existent output growth is assumed to come upwardly from a rising inwards the number of workers (demographics), in addition to labour productivity growth. (The number of hours worked per worker could rise, but in that place are physical limitations to this, in addition to the reality is that the tendency moved inwards the contrary direction over the past times century.) I volition supply to the long-term growth floor later.
The payoff of labour productivity is that it is tardily to measure; but guess total existent output, in addition to the number of hours worked to decide existent output per hour. Productivity is the alter inwards that series. (The concept of accurately measuring “real output” inwards a globe where the mix of goods in addition to services changes is a theoretical horror show, but I volition set that to the side.)
The job is that this may endure purely the final result of adding to a greater extent than capital: instead of earthworks ditches amongst picks in addition to shovels, nosotros arrive at it amongst backhoes or whatever large machines are used to dig ditches. (Trained equally an electrical engineer, non civil.) Economists reasonably desire to isolate the trial of pure “capital deepening” versus improvements inwards how labour in addition to uppercase are utilised. This is commonly referred to equally “technology” improvements inwards economical jargon, but that does non imply that this is only due to things similar information technology. For example, it could endure due to advances inwards organisational structure.
This leads to the concept of “total element productivity,” which assumes that nosotros take away maintain a production constituent based on labour in addition to uppercase inputs, in addition to total element productivity increases heighten the output for the same grade of uppercase in addition to labour. The drawback is that nosotros demand a production function, in addition to post-Keynesians take away maintain spent decades sneering at mainstream production functions. Furthermore, the thought of measuring of uppercase raises the dreaded Cambridge Capital Debates, in addition to I demand to pour myself a potent adult drinkable earlier I fifty-fifty showtime to mean value virtually that quagmire.
Since the stock of uppercase does non chop-chop alter inwards the developed economies, nosotros tin set it aside in addition to but worry virtually labour productivity for cyclical analysis. (This is non equally truthful for investment-led growth stories, similar mainland People's Republic of China inwards recent decades.) However, nosotros would demand to worry virtually uppercase if nosotros are doing medium-term growth projections.
Manufacturing
Professor Marc Lavoie’s Post-Keynesian Economics: New Foundations has a summary of diverse models for production. Section 5.5 (“The Kaleckian Model amongst Overhead Costs”) has an interesting tidings that leads to the notion of Okun’s Law. The textbook has actual equations amongst a express amount of algebra, but for my purposes here, I am going to acquaint an over-simplified version, which is aimed at manufacturing. The justification for this simplification volition give-up the ghost to a greater extent than apparent equally I switch over to discussing services.The thought is that nosotros take away maintain a manufacturing theatre that produces a unmarried proficient – widgets. We assume that line workers utilisation workstations, in addition to so they take away maintain linear output based on the number of workers until all workstations are occupied (maximum applied scientific discipline capacity). For simplicity, assume that each line worker produces i widget per day, the theatre has 100 line workers, in addition to 120 workstations available.
In add-on to the 100 line workers, the theatre has thirty other employees – supervisors, accountants, marketing types, etc. They arrive at non arrive at widgets straight (or less charitably, they are deadwood). The commons post-Keynesian supposition (as based on the tidings inwards Lavoie's text) is that the number of these workers are fixed inwards proportion to applied scientific discipline capacity.
Although line worker productivity is fixed, that is non truthful for the plant’s labour forcefulness inwards aggregate. If the number of line employees rises to 101 from 100, output rises too past times 1%. However, the total number of employees – which is what nosotros stair out inwards aggregate – rises from 130 to 131, or an increment of less than 1%. This leads to the observation that the rising inwards output is greater than the alter inwards job – roughly, Okun’s Law. (I take away maintain non dug into the conventional formulation of Okun’s Law; my description hither is based on Lavoie’s treatment.)
For those interested inwards post-Keynesian/mainstream economist mud-slinging (and who isn’t?), this is a keen win for post-Keynesian economics. It tin easily explicate the empirically observed Okun’s Law, whereas it is a existent theoretical muddle for mainstream economic science in addition to its preferred production function.
I emphasised that this is a manufacturing theatre for i reason: measured output is independent of demand. It does non thing how many widgets the theatre sells, its existent output is the number of widgets produced. Widgets non sold terminate upwardly equally inventory, in addition to thus correspond inventory investment. (Lack of demand may forcefulness a reduction inwards output inwards a time to come accounting period, but that is some other issue.)
Services
(This department are observations that I cannot link to whatever item author, so delight arrive at non blame the post-Keynesians if I am out to tiffin on this.)Modern economies are services-based, in addition to measured output becomes to a greater extent than demand-dependent. The output of a eatery depends on how many customers walk inwards to purchase meals, non how many cooks the eatery hires (unless the eatery is so pop that it sells everything that tin endure cooked…).
This destroys the notion of a production function; firms manifestly demand employees, but inwards the short-term, measured output may non endure related to the employees beingness hired. Over the medium term, restaurants volition expand their staff, in addition to novel restaurants volition pop up, but in that place is express powerfulness to adjustment to demand. (Admittedly, restaurants are means to a greater extent than flexible than other service firms, such equally fiscal firms.)
Since the services sector was historically less cyclical than manufacturing, this demand trial was less pressing. However, it needs to endure kept inwards heed when discussing recent history, such equally the Financial Crisis recession. The differing responses of the 2 sectors explains why I am satisfied amongst uncomplicated models for manufacturing.
It would belike brand feel to dis-aggregate the concern sector to amend model this effect, a chore that I volition endeavour when I plough to examining the historical record.
Long-Term Productivity
Influenza A virus subtype H5N1 keen many economists are bugs on long-term productivity. Roughly speaking, all discussions of long-term growth prospects are largely tidings of long-term productivity, since demographic trends are largely baked inwards the cake for a pair decades (other than the ugly possibility of volume deaths that I would rather avoid thinking about).This is of keen import to political discussions: most centre-right parties (and belike most left-of-centre parties) volition combat that their political programme volition Pb to greater productivity growth, in addition to hence prosperity. Influenza A virus subtype H5N1 chicken inwards every pot, a machine inwards every garage, in addition to all that.
It thence comes equally no surprise that what mightiness seem equally a dry out economical theme has a sure amount of political argument behind it. This is an surface area that I am largely uninterested in, so I am staying clear of such controversies.
There is i exception to my lack of interest. I would greenback that post-Keynesian theory suggests that in that place is a scrap of a costless tiffin here: an economic scheme running hot tends to take away maintain higher productivity growth. Given that the neoliberal consensus has trapped the developed globe into a construction amongst glacial growth rates, this angle is far to a greater extent than interesting than most of the discussions of productivity. Since nosotros demand to give-up the ghost dorsum decades to reveal such periods of hot economical growth, I facial expression that I volition non dip into that tidings equally constituent of my book; I desire to stick the eras I am most familiar with.
My disdain for long-term growth analysis is based on 2 arguments.
- I am inwards the Peak Oil camp, at to the lowest degree for the applied scientific discipline arguments. (There was a lot of pop economic science inwards involvement Peak Oil discussions that I was non a fan of.)
- It is difficult to stair out output over the long term.
The side past times side job is that nosotros actually stair out output inwards dollar terms, in addition to nosotros take away maintain to assume that dollar values are somehow related to existent values. When the mix of goods in addition to services changes over the decades, how comparable are national output figures? Back inwards the day, all nutrient was “organic,” whereas currently brute products are chock total of diverse additives in addition to antibiotics inwards many countries. (I believe that countries such equally French Republic are beautifully backward inwards this regard.) If in that place is whatever dubiousness inwards how nosotros stair out existent output over the decades, that dubiousness shows upwardly inwards productivity (since nosotros tin e'er guess hours worked relatively reliably). My hunch is that the continuous rotation of goods in addition to services beingness produced turns into a bias that rising nominal spending reflects existent improvements inwards output – fifty-fifty if everything is going all to heck* inwards a handbasket.
Concluding Remarks
Productivity is an of import concept inwards mainstream economics, but I am unsure how useful it is inwards the context of cyclical analysis. I am non the individual to hash out notions of long-term productivity, although I may dip my toe into the debate regarding hot economies in addition to productivity growth.Footnote:
* I run a G-rated website.
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