Technology to continue boosting productivity

OUTLOOK

More computer-literate employees, investment in equipment spur output

May 16, 1999|By Mark Guidera

PRODUCTIVITY -- a measure of output per worker per hour -- increased an unexpectedly strong 4 percent in the first quarter, a good sign that inflation will remain tame. That's because when workers produce more goods and services per hour, it gives businesses a competitive edge and enables them to keep prices lower. It also lets firms raise wages without cutting into profits.

What is responsible for the rise? New technology? Better worker training? Can it be sustained?

David Berson

Vice president and chief economist, Fannie Mae

Two things are pushing productivity.

First, the business cycle -- the strength in GDP -- is so strong.

And second, there have been large investments in information technologies by companies across the board, from one-man operations to very big firms. Investments in new plant equipment and technologies are giving us faster productivity growth with less inflation.

In loose terms, people have finally figured out what to do with computers at work other than playing solitaire.

For example, $1.5 trillion in loan originations were processed for the mortgage industry last year. That's 50 percent more than were processed in 1993, yet there still are the exact same number of workers. Also, there were virtually no complaints about delays. That's a good example of how technology is affecting worker productivity.

I think this growth in information technologies means this type of productivity is here to stay for the foreseeable future. Long-term productivity growth will probably average around 2 percent. That's double what it was in the '70s and '80s.

J. Patrick Bradley

Senior vice president and economist, Mercantile Safe Deposit & Trust Co.

It's hard to tell at this point what is really responsible for the productivity growth. Certainly some of it can be attributed to new technologies. Investing in them has become cheaper. Production processes also have really improved. We've also got a better-educated work force that knows how to use the new technology, and that leads to more efficiency and productivity. And businesses are managing their inventories better as a result of technology and smarter workers.

But there's also the cyclical story. Are we in a "new age" of productivity growth?

I don't think there's an easy answer to this, but I think it is safe to say we haven't repealed the business cycle yet. The normal expansion movement of the business cycle usually gives us a surge in productivity. In these cycles, workers are used more intensely. Then, later, you have to bring on new workers to keep up the pace. That slows down the rate of productivity growth.

The economy's noninflationary [productivity] speed limit might be higher now -- 3 percent is the new level you see mentioned most often.

One of the real issues is whether the pace of growth can be sustained without labor costs increasing. We are already seeing salaries bid up for very skilled workers in technology and finance.

The other element in the equation is whether inflation will return as world economies stabilize and start growing again while resource inventories are down.

David Levy

Vice chairman and director of forecasting, Levy Economics Institute

Some of the first-quarter surge in worker productivity is due to special, temporary factors, one of them being the weather. Mild winters always boost productivity. Also, we are seeing a big snap-back from the GM strike, which contributed to a weak second and third quarter last year.

On a more sustained basis, I think technology and people's understanding of how to use it contributed to improved productivity. Areas we're seeing big strides made in productivity as a result of new technology investments are services and manufacturing.

Manufacturing has shed a lot of inefficiency in inventories. The computer systems are being tied together so that when someone at the Kmart makes a Pampers purchase, it gets swiped at the register and the information sent to the factory where the diapers are made so it can decide how many more to make.

Management is also much-better trained. Managers know what technology their companies need and how to use it. A big problem in the '70s was a lot of companies invested in computer mainframes and databases, but they really didn't do what the company needed. That hurt worker productivity.

We're at a point where the technology has matured, and people feel a lot more comfortable using it. That's a cultural shift. The Internet also is clearly having an impact on worker productivity.

Looking ahead, we're a bit worried about what may be in store in the near term. There's still a lot of over-capacity around the world, and asset valuations are very unstable, especially in the stock market and housing. If anything slows the booming engine we have in the United States, the economy will soften quickly. In the longer term, we should see more technology improvements and that should lead to a more sustained period of productivity growth.

Pub Date: 5/16/99

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