You are currently viewing Do Less and Earn More: Falling US Productivity

Do Less and Earn More: Falling US Productivity

The American worker is getting lazier.

Or at least that’s what a quick look at recent productivity numbers might lead you to think.

The productivity of American workers in the first quarter fell while wages actually rose – workers are paid more for doing less. Is that just laziness? As tempting as the assertion may be, there is much more to explain recent productivity declines.

Yes, there is an incredibly tight working environment. With near-unreal unemployment and multiple job openings for every job seeker, it definitely seems like the workers have all the power. They can relax at work and know they won’t be fired, and even if they do, who cares? There’s a post open for them across the street. That comfort factor is certainly part of the productivity narrative, but it’s not the only driver. There is more to the story if we really want to understand the state of productivity and wages in the United States.

Like it or not, Covid is still here

Perhaps the most obvious contributor to productivity variance is Covid-19. While hospital numbers have remained low and acute cases are less of a concern than they were in the past, new Omicron-based strains are more infectious and spread faster. And more sick people have an impact on productivity.

Illness has always weighed on productivity figures – even before Covid there were strong studies on the cost of the common cold. Flu vaccines have been seen for years as a boost to economic productivity, with savings running into the billions of dollars. Covid is no different. Its combination of potential severity in the form of Long Covid cases and the risk it poses to the elderly, combined with broad infectiousness, is a real economic drag.

Even if we consider it “just another cold” and normalize it, we should still expect a drop in overall productivity. After all, Covid hasn’t “supplanted the flu or the common cold – it’s just another potential illness that’s been added to the annual list.” A new annual strain of colds or flu on top of the standard pre-Covid rotation suggests we should start expecting employees to be inactive a few more days a year – for someone who works 250 days a year , three extra sick days is a drag of more than 1% on their production.

Churning in remote employment

Another major contributor to variance in productivity numbers is job turnover. By now, I’m sure we’ve all heard of the Great Resignation and seen the workforce begin to reshuffle. With so many jobs open and new flexibility around remote work, many people are moving and finding new opportunities. Remote work and wage smoothing across more geographies has many positive externalities over time, but in the short term it’s difficult. New employees need training, and training is difficult when working remotely.

Training and finding a new job impact productivity in several ways.

First, there is the actual time spent training. Upgrading and becoming a pro in a new role doesn’t happen overnight, especially for more complex jobs. No matter how great an employee can become or how skilled someone is, there’s always a learning curve as people navigate new software, new hierarchies, new products, and new teammates.

Second, there is the time that managers and leaders must devote to training new people. The people who train new employees tend to be the most productive workers, and while training time has long-term benefits for the company, in the short term it hinders production and productivity. Investments in the future now have real-time costs.

Third, many new hires find it difficult to be part of a larger team while working remotely. The shift to remote working during Covid-19 was a shock and required a lot of recalibration – but overall teams remained intact or remained stable. There were connections and understandings formed in the office that people could carry over into remote work – a shared culture that people could build on. Bringing new team members into an entirely remote environment is a whole different experience and many companies are still looking to do it effectively. Low engagement, poor training, all of this is going to impact labor productivity for some time as companies across the country figure out how to efficiently add staff.

Lag in the labor market

Given the difficulty of training new recruits, it is perhaps unsurprising that unemployment has remained highest among young workers. Young graduates without established networks, without experience allowing them to demonstrate their reliability in remote contexts, they have difficulty finding jobs. Youth labor force participation rates have fallen, and according to the US Department of Labor in April 2022, the unemployment rate for the 20-24 year old cohort is more than double the unemployment rate for people of the same gender who are in their 35s. – 44 cohort. It’s unfortunate, but it also makes a lot of intuitive sense. Who wants to hire a new employee with no training when they can’t see them, can’t trust them, and have no track record?

Lack of confidence is particularly relevant when considering the strength of US corporate balance sheets. Businesses are brimming with money and have the ability to seek out talented workforces. If an employer with a strong balance sheet has to choose between paying a little more for a more certain asset, versus taking a flyer on a new hire, it’s a bit of a no-brainer – pay a little more, get the premium asset, return to productive growth.

This leaves us with a labor market where the labor force is stronger than it was in the past, but it is harder to break into. Entry-level jobs are then expected to be cheaper, but younger workers expect rapid wage growth once they prove their ability to work.

Invest in increased productivity

Companies that do not want to train new employees and want to limit their hiring have an alternative to try to increase their productivity: technology. Rising salary pressures and the difficulty of recruiting talent mean that it is increasingly attractive for companies to spend money to maximize the talent they already have. These are the classic factors of production – companies can spend on labor or capital, and right now labor is getting expensive!

We expect technology companies that enable automation and productivity growth to become increasingly vital parts of the economy as labor costs remain high and long-term demographics limit supply. labor. US population growth has slowed and demographic pressures on the workforce are expected to persist in one form or another over the long term, leading to substantial changes in immigration policy. If the demographic contribution to GDP begins to slow, then increasing productivity becomes essential to GDP growth. Automation and technological innovation are at the heart of increasing long-term productivity and production.

Companies that provide innovative technology solutions come in all shapes and sizes and exist in all industries. Some good examples are companies like Salesforce (CRM), which launched the software as a service model and built a platform that is quickly becoming a fundamental corner of business productivity. In the field of industrial automation, you can turn to companies like Rockwell that help automate assembly lines and factories and benefit from the constraints of offshoring and manufacturing labor. In the world of finance, examples are everywhere, from digital banking platforms like Goldman Sach’s Marcus to payment processors like Block (SQ) that use payment processing data to make it easier for people to get loans. small enterprises.

In summary, each industry has specific challenges when it comes to increasing productivity, but all industries face rising labor costs and challenges in finding and retaining talent. Businesses that can improve productivity and reduce labor constraints offer significant value and have long-term demographic tailwinds. They could be a great investment and they deserve your attention.

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