The Productivity Puzzle: Numbers Alone Won't Solve It
Total Page:16
File Type:pdf, Size:1020Kb
A Review Essay The productivity puzzle : numbers alone won't solve it From vantage points in management, labor, academia, and government, contributors to four recent books grapple with the productivity slowdown, with little help from economic theory PAUL S. ADLER Over the last two decades, there has been a major de- originality in the capacity to link the two factors, in a cline in the rate of growth in U.S. productivity . The lag synthesis of micro- and macro-economics. But so far, in the ratio of output to input has also occurred in this approach has not shed light on the most elementary many other industrial countries, including Japan. part of the productivity puzzle: Is the productivity slow- Orthodox economic theory hypothesizes a basically down basically a cause or an effect of current economic technical link between trends in output and input, problems? namely, the production function. This hypothesis has Research on productivity thus progresses somewhat been put to a severe test, for the precise extent, the ori- unevenly . Three foci of study have emerged : data analy- gins, and the significance of the productivity slowdown sis, study of management practices, and research into are yet to be analyzed with a clarity that would demon- labor relations and conditions . Productivity: Prospects for strate the usefulness of traditional economics in ana- Growth, edited by Jerome Rosow, deals with all three lyzing such problems . subjects . The interdependence of the three themes There is, in particular, a surprising contrast between makes this presentation most judicious. Three other re- the wealth of studies that attempt to quantify the decline cent books have also addressed one or other of these and calculate its causes, and the poverty of material matters. Before discussing the major issues, we will on the role played by such a lag in macroeconomic per- identify the overlapping concerns of the four volumes. formance . It should be remembered that, in general, at a Productivity: Prospects for Growth includes five contri- company and an industry level, labor productivity and butions to the task of data analysis . Solomon Fabricant profitability are not well correlated, and that in capitalist of New York University and Dale Jorgenson of Har- economies decisions are based on the latter, not the for- vard University present the growth accounting data, Je- mer. Paul Samuelson's neoclassical paradigm claims its rome Mark of the Bureau of Labor Statistics, the mea- surement consideration, and Howard Samuel and Rudy Paul S. Adler, a research economist with the Employment Research Oswald of the AFL-CIO, their views on the role of for- Center of the French Ministry of Labor, has been a guest scholar at eign trade and labor unions. the Brookings Institution and the Bureau of Labor Statistics . He is The reader seeking more detail on current data analy- currently a visiting assistant professor of economics at Barnard Col- lege, Columbia University, N.Y . sis methods can consult Aggregate and Industry-Level 15 MONTHLY LABOR REVIEW October 1982 . The Productivity Puzzle Productivity Analysis, edited by Ali Dogramaci and management and labor aspects, as they are discussed in Nabil R. Adam, both of Rutgers University ; this is the Buehler and Shetty, Hill, and the other chapters of second volume of the Studies in Productivity Analysis Rosow. In a concluding section, we sketch some alter- series. Two papers address methodology: that by native lines of research . Ephraim Sudit of Rutgers University and Nachum Fin- ger of Ben Gurion University presents a general survey The conceptual problems of data analysis and that by Douglas Moon of Columbia University, the The literature on the productivity problem shows lit- dynamic input/output model. The formidable problems tle patience with the troublesome theoretical problems posed by time-series analysis are discussed by Lawrence of economics. These books are no exception. Fabricant's Cohen of Columbia University and Salin Neftci of Bos- overview gives theory scant attention; Mark's discussion ton College. Tom Boucher of Cornell University of measurement problems includes an extensive survey assesses technical change; J. R. Norsworthy and Mi- of the reliability of our data, but from an exclusively chael Harper of the Bureau of Labor Statistics consider pragmatic point of view. Sudit's discussion of method- capital formation, and Frank Gollop of Boston College ological issues is broad-ranging but makes no effort to and Mark Roberts of Pennsylvania State University an- draw any conclusions concerning the value of the em- alyze imported intermediate inputs. pirical work that is founded on fragile hypotheses. Most The next theme, management, is examined in Produc- of his fellow contributors to the Dogramaci/Adam col- tivity: Prospects for Growth by John Donnelly, who lection, concentrating on empirical industry-level and discusses the role of the chief executive, and by Alfred time-series analysis, struggle with the practical difficul- Neal, former president of the Committee for Economic ties associated with these problems without the benefit Development, who analyzes the role of the tax system. of a viable theoretical framework. Not surprisingly, Exploring technological change at the corporate level such studies are principally of interest to the profession- are Reginald Jones, chairman of General Electric, John al student of productivity . Diebold, chairman of the Diebold Group, Thomas Two theoretical problems in particular would seem to Donahue, secretary-treasurer of the AFL-CIo, and Rob- merit discussion. Productivity analyses inspired by the ert Ranftl of Hughes Aircraft Corp. neoclassical paradigm attempt to quantify the contribu- The problems of productivity management are also tion of each factor of production to output growth. The the theme of papers edited by Vernon M. Buehler and productivity growth that cannot thus be explained, Y. Krishna Shetty, both of Utah State University, in called the residual, has been attributed to technical Productivity Improvement. Case Studies of Proven Prac- change . Growth is thus decomposed into movements tice. Represented are 11 companies and three unions . along a production function (representing a certain tech- Contributors also include Murray Weidenbaum, former nology), and shifts of the production function (indica- chairman of the Council of Economic Advisers, and tive of a change in technology). If this sounds plausible Clement Preiwisch of the General Accounting Office . for small, marginal changes, Nelson' has already drawn The last theme, dealing with labor, is discussed in attention to the absurdity of the attempt to extrapolate Productivity: Prospects for Growth from four perspec- the procedure to major changes such as we have tives. Rosow of the Work in America Institute surveys witnessed over the postwar period. the problems associated with the various "human fac- The second question warranting additional research tors" and discusses their possible remedies. Writing on takes us further back, into the great "Capital Debate" worker participation are Stephen Fuller, vice president between Cambridge (U.S.) and Cambridge (U.K.). The of General Motors, Douglas Fraser, president of the conclusion was that the neoclassical attempt to base a United Auto Workers, and Wayne Horvitz, director of theory of distribution on the theory of production was the Federal Mediation and Conciliation Service. fatally flawed: even under competitive equilibrium con- These problems are given more theoretical treatment ditions, the remuneration of capital is not determined in Stephen Hill's Competition and Control at Work: The by its marginal productivity, because the definition of a New Industrial Sociology, the fruit of his teaching at the quantity of capital presupposes determination of the London School of Economics. distributional variable . This conclusion vitiates much of The four books incorporate some of the most ad- the growth accounting exercise, because the calculation vanced thinking in this, somewhat fragmented, area of of a stock of plant and equipment-at first sight purely research . Our review will thus attempt to assess some of physical entities-involves a nontechnical factor like the strengths and weaknesses of the state of the art. The the rate of return . Multifactor productivity studies, first two sections will deal with conceptual and analyti- however, continue to calculate a stock of capital (or a cal problems and will therefore consider the contribu- flow of capital services) by virtue, as C. E. Ferguson put tions of the Rosow volume and Dogramaci and Adam it, of an "act of faith" : "The question that confronts us collection . The following two sections will cover the is not whether the [British] Cambridge Criticism is the- 16 oretically valid. It is. Rather the question is an empiri- quality range. In an extreme case, that of the computer cal or econometric one: is there sufficient substitutabili- equipment industry, the difficulty of the task of measur- ty within the system to establish neoclassical results? . ing quality change has led to total capitulation, and the Until the econometricians have the answer for us, plac- price deflator is conventionally set at 1, as if there had ing reliance upon neoclassical economic theory is a been no qualitative improvement at all since the birth of matter of faith."' It is somewhat disconcerting to find the computer industry . Some, not implausible, estimates the current productivity research pursued