The single most important fact about the Economy: productivity.
You may have enjoyed this little twitter storm with Weetbix, Heinz, Nandos and many other social media accounts.
https://twitter.com/weetabix/status/1359074254789165059?s=20. It made people smile for a few moments and it’s heartening to know that people are paid to have so much fun!
But economics is the dismal science and it’s time to calm things down a bit!
One of the perplexing facts about the economy since 2008 is that GDP is up, employment was at record levels (pre pandemic) yet wages have been stagnant and — most importantly — productivity growth has been stagnant too.
Productivity is output per worker. Since output has been increasing but employment increasing just as fast, the basic maths tells us that productivity growth has been stalling.
Why is this so important? Well an economy is essentially the transformation of (scarce) resources (land, labour, capital) into goods and services. Our consumption of those goods and services makes our lives better (the consumption of netflix, the consumption of food). The more productive we are — that is, the more food we can produce with a given unit of labour, the more there is available for us.
This simple diagram, a Production Possibility Frontier, shows the maximum output an economy can produce of combinations of goods and services with a given amount of resources such as labour — assuming all resources are employed. If productivity remains constant, the only way we can get more services is by giving up some output of goods. There is a trade-off. But with increased productivity we can get more of both goods AND services. The PPF shifts out to the right. This is economic growth.
So the stagnation of productivity is worrying — it suggests that we will not have more goods and services in the future. And for much of the 20th Century we used growth to fund further investment and improvements in healthcare, education and the welfare state. Without growth, where will further improvement come from?
It is equally perplexing to note that the technology revolution that has transformed our personal lives has not had a greater impact on productivity growth at work. Our smartphones have given us access to unlimited information and allowed us to make and keep connections with friends and family — why has all that technology not been more useful in our places of work?
Maybe the pandemic will change things: working from home has allowed me to attend more (zoom) meetings and work collaboratively without wasting time on travel, has allowed doctors to conduct e-consultations, has allowed lawyers and accountants and many businesses to continue working whilst stripping out the unnecessary bits that come with a day of work. All this tech was available to us before, but the pandemic made us use it. Initial evidence does suggest that there have been productivity gains across many professions: Homeworking boosts Britain’s productivity: ‘Five days work Now done in four’.
Will these productivity benefits of online working be sustained once lockdown ends? The indication is many will be, with office workers doing their jobs from home and only going to the office when it is actually productive to do so. But as the Weetabix, Heinz story shows: we humans are just as liable to be distracted by technology and social media, scrolling through our Twitter or Instagram feeds and finding time goes past very easily with nothing much accomplished. The elusive productivity gains we need remain more than a few clicks away still.
