April 04, 2016
Contrary to the robots taking our jobs story, Robert Samuelson gets the basic story right. Productivity growth has fallen through the floor, rather than going through the roof as the robot story would have us believe. Productivity growth has averaged just over 1.0 percent annually since the start of the recession in December of 2007. It has been less than 0.4 percent a year in the last two years.
Samuelson speculates that this slow growth might be due to the old economy competing with the new economy. His example is Walmart setting up an Internet based system to compete with Amazon. He argues that much of this will end up being wasted, as only one of the sellers will end up winning.
While Samuelson is right that this competition can lead to waste, but that is always true. Companies always are competing to gain or keep market share. Some end up losing, meaning that their investment was a waste from the standpoint of the economy as a whole. (The competition is nonetheless important in a dynamic sense in that it forces the winners to be more efficient.)
For Samuelson’s story to be correct, we would have to be seeing much more of this competition today than in prior periods. That doesn’t in any obvious way appear to be true. For example, investment is not especially high as a share of GDP.
My alternative explanation is that a weak labor market and low wages explain much of the slowdown in productivity. The argument is straightforward. When Walmart can hire people at very low wages, they are happy to pay people to stand around and do almost nothing. That is why many retailers now have greeters or sales people standing in aisles who contribute little to productivity.
If wages were higher, Walmart would not employ these people. This would make little difference in its sales, but would reduce the number of people they have working, thereby increasing productivity. If this phenomenon is common, it could be a factor in the productivity slowdown since the start of the Great Recession.
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