Why Aren't We More Productive? Computing and the internet should make us more productive. Or should they?! It's an Indicator mystery.
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Why Aren't We More Productive?

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Why Aren't We More Productive?

Why Aren't We More Productive?

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STACEY VANEK SMITH, HOST:

So I love mysteries. And I think it's because my mom loves mysteries. I used to watch "Masterpiece Theatre" with her all the time - like, "Sherlock Holmes" and "Hercule Poirot" and "Miss Marple."

PADDY HIRSCH, HOST:

The classics.

VANEK SMITH: Did you ever watch those?

HIRSCH: Oh, of course.

VANEK SMITH: Oh, that's so good to know. But anyway, I think maybe that, my love of those shows, is why I can never resist an economic mystery. And one of the big ones out there is the Productivity Mystery. We just got new productivity numbers out this morning, and productivity grew at a 2.9 percent annual pace in the second quarter. That is today's indicator, 2.9 percent. And that is quite good. But productivity growth has been really weak for a long time, for decades. And over the past year, even including that strong second quarter, productivity growth was only 1.3 percent - pretty slow.

HIRSCH: And measuring productivity seems like it would be kind of difficult or at least really complicated. But actually, it turns out that it's really simple. We talked to Heidi Shierholz about this. She's a senior economist at the Economic Policy Institute.

HEIDI SHIERHOLZ: So we have these measures of GDP - so the total output produced in the economy. Then we also have other surveys that measure the total hours worked in the economy. Productivity is literally the ratio of those two things. I'm simplifying a little but not actually that much.

VANEK SMITH: So how much stuff the U.S. economy produced divided by the number of hours we all worked - so how much economic bang we're getting for our hours-worked buck.

HIRSCH: So simple.

VANEK SMITH: So simple.

HIRSCH: So simple. But yet, there is a mystery...

VANEK SMITH: Yes.

HIRSCH: ...Because if you look at productivity numbers in the U.S., they have been on a tear since the 1940s - just up and up and up. And this makes sense, right? Plane travel became common - electric lights, air conditioning, highways, penicillin...

VANEK SMITH: Brave new world.

HIRSCH: Brave new world. With the help of machines, one human could produce hundreds of lamps or chocolate bars or T-shirts every hour - so way more productive than the days of the artisan. But over the last 10 years, productivity has slowed to a crawl.

VANEK SMITH: And this seems really strange - right? - because all the advances in technology in the last decade have made us able to work so much faster, so much more efficiently. Our productivity seems like it should be on fire.

JUSTIN WOLFERS: And yet...

VANEK SMITH: And yet...

WOLFERS: ...It is not.

HIRSCH: Justin Wolfers is a professor of economics and public policy at the University of Michigan.

VANEK SMITH: Is it important? Is it, like, a big deal? If, you know, the economy's doing pretty well, does it matter that we're less productive?

WOLFERS: Yes. In fact, it might be the key economic indicator. If you want life to get a little bit better each year or for this generation relative to the last generation, then we need people to be able to get more done, produce more stuff each hour or each workday or each lifetime. So we can definitely make more stuff by getting people to work more hours, but that's no fun. What's better is when we get to make more stuff while working the same number of hours. That's productivity growth, and that's why we say it's the key driver of living standards over the long run.

VANEK SMITH: Paddy Hirsch, our very lives are at stake.

HIRSCH: (Laughter).

VANEK SMITH: This is THE INDICATOR. I'm Stacey Vanek Smith.

HIRSCH: And I'm Paddy Hirsch. Today on the show, the Great Productivity Mystery.

VANEK SMITH: The podcast is afoot.

(SOUNDBITE OF MUSIC)

VANEK SMITH: Today's indicator is three. That is the number of suspects in our Great Productivity Mystery. Of course, there are many more suspects, but these are our top suspects.

HIRSCH: And Suspect No. 1...

VANEK SMITH: (Singing) Dun-dun-dun (ph).

HIRSCH: ...Is mismeasurement. This is the idea that we're actually way more productive than we've ever been before, but we're just productive in a new way that just isn't being measured. Because we think of productivity as making something like a car or a circuit board, the goods and services we actually produce today are kind of elusive.

VANEK SMITH: Maybe when I'm Googling something, I'm actually producing something for Google. That isn't currently measured as, like, economic output. But maybe it should be because it does create value for Google.

WOLFERS: So this is the idea that we're producing just as much stuff. But because the price is zero, when economists go and measures output - and we do measure stuff according to the price we sell it at - that it doesn't look like output. And so this is the magic of Google and Facebook and Instagram and Amazon. The problem with that story is if you look at the extent of the productivity slowdown, it's so large that if we hadn't had a productivity slowdown, we're missing about - a little less than $3 trillion. And as important as Google and Facebook and the IT revolution is, it's hard to find $3 trillion dollars out of technology. So the shortfall is just too big.

HIRSCH: Suspect No. 2...

VANEK SMITH: (Singing) Dun-dun-dun...

HIRSCH: ...Wages.

VANEK SMITH: (Singing) ...Dun-dun.

WOLFERS: So wages haven't grown much in the U.S. over the past few decades, and there are all sorts of reasons for this. But Heidi Shierholz says, when wages are low and labor is cheap, companies will often not invest in things that would make those workers more efficient.

VANEK SMITH: So let's say there's a company that digs ditches. It could buy a hydraulic shovel that would let one worker do the ditch-digging work of five workers. Or it could just hire five workers and give them all regular old shovels. Now, if the workers are cheap, that company might opt for just the five people with regular shovels.

SHIERHOLZ: Right. Just think of it as - like, OK. We'll have them dig with shovels rather than getting some hydraulic extractor because I can actually hire all the workers I need...

VANEK SMITH: Oh.

SHIERHOLZ: ...For cheaper and give them all shovels than buying that one big piece of equipment that would be used by just one worker which would dramatically increase the productivity.

VANEK SMITH: So they are just, like, basically making a logical economic calculation.

SHIERHOLZ: Yes.

HIRSCH: Which brings us to Suspect No. 3.

VANEK SMITH: (Singing) Dun-dun-dun.

HIRSCH: And here's where things get meta. There is no mystery.

VANEK SMITH: The victim was alive all the time.

SHIERHOLZ: Then it's not a paradox. It's just looks at...

VANEK SMITH: Reality.

SHIERHOLZ: ...The assumption that - yes, right. It's this assumption that we had that these new technologies would accelerate productivity growth that just hasn't happened.

VANEK SMITH: In other words, the numbers have it right. We feel like our iPhones and our Amazon Prime and our Google and our Uber have made us way more productive, but they really just haven't. And that seems hard to believe to me. But Justin Wolfers says Suspect No. 3 looks pretty guilty to him.

WOLFERS: It's easy to be impressed by the enormous technological and innovative gains over the past decade or so. But then, the thing is you've got to remember what the equivalent gains were in an earlier period. Right? So we now have people who can fly through the sky by sitting in a metal tube. We had the invention of the computer. We had indoor plumbing. Yes, the current era is impressive. But previous eras, it looks like from the statistics, were even more impressive.

VANEK SMITH: Like, when you grade on a curve, we're like, it's sort of a snoozefest.

HIRSCH: So Google and Amazon and the iPhone, all the apps we use - sure, they're making us more productive. But they're no lightbulb. They're no combustion engine. I mean, Amazon Prime can get you a package in two days...

VANEK SMITH: That's true.

HIRSCH: ...Or even overnight. But it's not like the invention of the wheel, you know?

VANEK SMITH: Or is it?

HIRSCH: (Singing) Dun-dun-dun.

VANEK SMITH: Just like in any great mystery, productivity has a twist, the last-minute suspect who you never even thought about because he just seemed so sweet. Surely, he couldn't be guilty. The suspect, Paddy - lag time. This is the idea that when a new technology comes, it takes a while for it to really get fully integrated into businesses and into our lives in a way that can truly make us more productive, that can improve our productivity.

HIRSCH: For example, Thomas Edison, who brought the lightbulb and electric lights to parts of Manhattan in 1882 - that technology took decades to catch on. In 1925, only about half of U.S. homes had electric power. The rest were still using candles and gaslights.

VANEK SMITH: So it could just be that the great technology productivity bump is coming. We will just have to wait for it, like a good mystery.

HIRSCH: (As Hercule Poirot) "Le Mystere De Productivite: Le Sequelle" (ph).

VANEK SMITH: Ugh, your Hercule Poirot kills.

HIRSCH: (Laughter).

VANEK SMITH: I think it's great.

HIRSCH: I'm twiddling my mustache.

(SOUNDBITE OF MUSIC)

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