With 151 million Americans employed in our nation’s workforce, you’d like to think increased inclusion of technology in workplaces would be making our jobs easier and us more efficient. Right?
Newly released data from the Bureau of Labor Statistics points to a troubling trend in our economy. Despite a 1.9% increase in the number of hours worked by all employed workers from March 2015 to March 2016, gross domestic product has only registered a 1.9% increase in the past year. Integration of technology like the transition to digital medical records, required smartphones for work-only functions, and a multitude of other ways in which innovations have crept into our cubicles, the economy has been slow to register the apparent advancements.
This statistic would be easy to ignore if it were a one-year outlier, but from 2011-2015, the BLS’ official labor productivity metric shows .4% annual growth in output per work hour. This is the lowest in a five-year span since 1973-1979 and only 17% of the growth experienced in the 1950’s. The New York Times recently spoke to Dr. Peter Sutherland, a family-practice physician in Tennessee, who made the switch from paper to digital patient files. “I’m working harder and getting a little less,” he stated, and at least one economist agrees with him.
In his new book, The Rise and Fall of American Growth, economist Robert Gordon theorizes that the current spread of digital modernizations has not yielded the economic gains felt from other innovations like railroads, electricity, cars, and the antibiotics.
Erik Brynjolfsson and Andrew McAfee, from the M.I.T. Initiative on the Digital Economy, surmise that there has always been a learning curve between when a new technology is implemented and when firms begin to use it efficiently. For thousands of years, humanity was sluggishly exerting increased social development, it wasn’t until the steam engine was developed in the eighteenth century that led to a transformation of our modern world. In their new book, The Second Machine Age, the pair point to the Internet as the prime example, which led to a steady increase in productivity beginning in 2000. The Internet is this second machine that altered humanity’s trajectory again and another jump in progress is unlikely to occur soon, they say.
Productivity is an essential area of study in economics. Not only is it one of the leading factors that decides how much we get paid (along with inflation), it is an indicator of economic growth (along with GDP, unemployment rates, etc.). The BLS’ report suggests if this trend continues, future generations may not be making any more real earnings (wages that adjust with inflation) than we are.
The importance of productivity in analyzing economic stability doesn’t make it any easier to understand, let alone quantify. How can you measure a service firm’s productivity? Even after studying the phenomenon for almost a decade, leading economists still aren’t sure why labor productivity skyrocketed during the 2008 recession.
If lethargic productivity persists, Americans’ standards of living will continue to experience slow growth. Earlier technological entrances into the workplace and corporate outsourcing of non-essential functions may have already reached their peak impact on increasing productivity. Capital spending has decreased since the recession, meaning workers won’t be getting the better equipment necessary to help them become more efficient.
This somewhat depressing scenario has a more optimistic counterpoint, however. When a business takes time to invest, its productivity remains relatively low as more people and more equipment enter the facilities to help the firm accomplish their organizational goals. A similar pattern can be seen with the economy as a whole. Businesses continue to add workers and the lack of economic response in the form of an increase in GDP may not continue as these investments pay off.
It’s actually happened before. A booming stock market and hiring craze led to an increase in investments and a decline in long-term productivity from 1993-1998 before it cyclically shot up again in 2000 when investments slowed. But, investments in patents, equipment, and facilities are relatively low compared to the size of the economy in 2016. This doesn’t necessarily indicate a lack of investments, but you’d expect more financing if the economy was waiting for the productivity shoe to drop.
But, spending on technology has increased nearly 54% in the last 10 years to $727 billion in 2015, according to a report by the McKinsey Global Institute. Most of the spending comes from firms investing in technology, in addition to an increase in consumer purchases on technological devices. In an industry analysis determining how the use of technology has changed how the work is done, McKinsey found that some industries like financial planning and media services were utilizing the advancements to increase productivity, while the health care and hospitality industries were not.
Only 18% of the economy has reached its “digital potential,” despite an four-fold increase in the digitization of business operations from 2005 to 2013. If the industries who are falling behind don’t catch up soon, leading economic indicators and subsequently, the economy itself, will continue to lag in growth.
Much like productivity, investments are also relative. Apple, Google, and several car manufacturers have sunk millions of dollars into creating commercialized self-driving vehicles that are just now starting to impact consumers.
While it’s unlikely we will be seeing a third machine age in the near future, the impact of today’s investments on tomorrow’s advancements is just beginning to influence our economy. What was once a considerable productivity drain in the last five years for many firms may just be the next economy-altering evolution that makes this current “down-payment” on an investment lead to a much more efficient future.