Robert J. Samuelson, “Productivity’s False Facade,”
Newsweek, March 24, 2003
Page 46

It’s tempting to believe that productivity—especially improved technology—will rescue the economy. The grounds for skepticism start with history.

In the Great Depression some industries experienced rapid productivity gains, as economic historian Michael A. Bernstein of the University of California, San Diego, has pointed out. Food marketing was one.

Small grocery stores gave way to new supermarkets; there were 300 in 1935 and almost 5,000 by 1939. Refrigerator sales boomed—from about 800,000 in 1930 to 2.3 million in 1937.

Electrification raised light-bulb sales sharply. But these and other gains couldn’t overcome otherwise dismal economic conditions.

We also need to remember that economic statistics are just numbers. Their significance depends on what causes them to move.

Productivity—the statistic—is simply a bit of arithmetic. Total output is divided by the hours people work. If output rises faster than work hours, productivity increases. This is what usually happens and it suggests better technology, better management and better workers. It’s a beneficial process that promotes economic expansion.

With lower costs, companies can increase wages and profits.

Higher incomes then drive higher spending.

But productivity—the statistic—also increases if work hours drop while output only sputters. That’s what actually occurred in both 2001 and 2002. Americans in private businesses (excluding government and nonprofit organizations) worked 187.61 billion hours in 2002, which was 2 percent less than in 2001. In turn, employment hours in 2001 were 1.3 percent less than in 2000.

There was more unemployment; people with jobs worked slightly fewer hours. Since 1947, there have been only 15 years when employment hours have dropped and only three other instances of consecutive annual-declines in 1957 to '58, 1970 to '71 and 1991 to '92).