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Why is productivity rising in the US?

Tom White

1st January 2012

Productivity – usually expressed in terms of output per worker – is a really important term in business. In fact, it’s up there near the top of the list of the most important measures of business efficiency. So is it good news that productivity continues to rise (at least in the US)? And what forces are driving this improvement?

It might just be that productivity is rising because workers are feeling a squeeze. According to The Economist, some analysts expect productivity growth to stall soon. Hard-pressed workers are feeling grouchy: workforce surveys report record levels of job dissatisfaction. Many firms have been “starving the organisation to see how it can do with a lower cost structure,” says one observer.

Two things could keep productivity rising. First, workers might be terrified of losing their jobs. This makes it easier to persuade them to put in extra hours or take on new tasks. Even in relatively highly unionised firms, there have been reports of greater flexibility. Second, tough times are forcing firms to strain every brain cell to become more efficient. Continuous improvement might lead to a series of tweaks, such as upgrading machines so that output increases with the same number of workers.

Regrettably, in the UK firms seem much keener to hoard cash or buy back their own shares than spend it on more efficient machinery or information technology. There are hefty gains to be made from using more automation and service businesses are also wringing efficiency improvements from new technology. Hertz allows customers to rent cars at automated kiosks, just as airlines have for some time allowed passengers to check in without talking to anyone. Fast-food firms, such as McDonald’s and Starbucks, are continuously innovating with their products and service.

Tom White

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