Interrupting access to cheap labour may have a positive outcome
Over the last decade or two, productivity growth in the West has slowed to a crawl. The result is stagnant wages, rising debt levels and growing inequality.
But all of sudden though things are on the move again — or at least they are in America. Writing for the New York Times, Neil Irwin documents an apparent “productivity boom”:
Meanwhile, in the UK, the furlough scheme has meant millions of workers not producing anything, but are still employed. This messes up the productivity stats. However, the ONS does produce a measure of output per job that excludes the furlough factor. And, yes, this does seem have risen during the pandemic.
As Irwin argues, this could be the result of differential job destruction. More low productivity roles have been destroyed than high productivity ones — thus increasing labour productivity on average. If so, it’s a hollow victory: an artefact of the incomplete way in which we calculate the figures.
The standard approach to measuring labour productivity is to treat the unemployed as if they didn’t exist. However if we included them and counted their economic output as zero (because they’re not in paid work), then that would paint a very different picture.
For instance, countries that leave the least skilled part of their working-age population to languish on the dole wouldn’t look so productive compared to economies that provide jobs for just about everyone. Similarly, the current Covid boost to productivity wouldn’t look so impressive if we factored in the zero productivity of all those who have lost their jobs over the last 18 months.
And yet that’s not the whole story. While Covid has destroyed jobs, it’s also created labour shortages — for instance by disrupting the mobility of workers within and between countries. This has forced employers to find new and smarter ways of operating.
If this is the dominant factor in the productivity boom, then there might be something to it. Indeed, we may come to see the pre-Covid era of easy access to cheap labour as something that held us back.