How is productivity measured

[Martha]

I have watched but don't have enough knowledge to participate in the threads on stocks and bonds. Productivity was mentioned as a driver of stock prices. How is productivity measured? Whose productivity is measured? Why does it keep going up?

I am in a service business and I know I became more productive as time went by. It was primarily due to experience and partly due to advances in technology. Technology meant we didn't need as much staff and could have a quicker response to client requests. Is this the kind of stuff meant when talking about productivity?

[justin]

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Originally Posted by Martha I am in a service business and I know I became more productive as time went by. It was primarily due to experience and partly due to advances in technology. Technology meant we didn't need as much staff and could have a quicker response to client requests. Is this the kind of stuff meant when talking about productivity?

Yes. In the legal field, Westlaw/Lexis allows intantaneous queries for case law, instantaneous review of those cases you find from your query, and instantaneous shepardization of the cases. Contrast the current electronic way of research against the constant running around the law library tracking down the various Fed Supps, State reporters, etc to read cases, shepardize and check precedent cases.

Document editing - you or your paralegal can change a few phrases or terms or paragraphs in a matter of minutes in a long document, hit "print" or "pdf" and fedex it or email it to the client. In the days of typewriters you'd have to mark up the document and have someone retype it to make major changes.

[MasterBlaster]

Productivity is defined as the amount of output per unit of input (labor, equipment, and capital). There are many different ways of measuring productivity. For example, in a factory productivity might be measured based on the number of hours it takes to produce a good, while in the service sector productivity might be measured based on the revenue generated by an employee divided by his/her salary.

[justin]

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Originally Posted by MasterBlaster ...in the service sector productivity might be measured based on the revenue generated by an employee divided by his/her salary.

Assuming number of hours billed remains the same, does this mean that the billable rates (in real terms) of an average attorney/engineer/accountant could be compared over time to determine changes in productivity?

In other words, let's say I'm the average engineer who bills at $100/hr today (in 2006 dollars). If I were practicing in 1990 as the average engineer, and I billed at $80/hr (in 2006 dollars), then there would be a 25% increase in productivity over the intervening 16 year period?

[Nords]

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Originally Posted by Martha Why does it keep going up?* Is this the kind of stuff meant when talking about productivity?*

Businesses are still learning innovative ways to use barcodes & RFID tags. Look at how much faster a rental car is checked in today (seconds vs minutes).

"Avoid extra work" is at least as big as "work faster". Hospitals are starting to attach cheap RFID tags to their surgical implements & even sponges. Before they close up a patient they wave a wand over the incision and make sure that nothing's left behind that's not intended to be...

[Scrooge]

I'll start by recycling an old post of mine:

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I have seen some of this growth first hand. At one point in the 1990s one of my clients was getting new generations of instruments (each one 30-50%+ more productive than the previous generation) so frequently that they couldn't write custom software to take advantage of them fast enough. They had the latest generation sitting in the storage area while they were writing software to take advantage of the previous generation!

Changes in the expected rate of productivity growth are a large part of what is driving the stock market. When new technologies appear that promise huge increases in productivity, the stock market reacts (and sometimes overreacts, as we saw in the late 1990s* ) accordingly. When productivity growth begins to decline, as it did in the early 1970s, projected earnings fall and so do stock prices.

[saluki9]

Martha, when the Bureau of Labor Statistics measures productivity they report it in 2 ways

1. Labor productivity - This is the easier version to understand. It's basically the total manufacturing output (in $$$) divided by the number of reported hours used to create the output. Of course, sampling is used as it would be impossible to calculate this in entirety


2. Multifactor productivity is also used to report on farm labor and business labor. This is a more complex calc because it takes into account the capital used in the production of services in addition to the hours of workers. The data is reported by SIC code to analyze by industry.

[Martha]

Saluki, is there any breakdown by worker experience? My hunch is that baby boomers are very productive. At least where I work, the biggest dollar generators and hardest workers are those in their 40s and 50s.

[Martha]

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Originally Posted by Scrooge When productivity growth begins to decline, as it did in the early 1970s, projected earnings fall and so do stock prices.

Why did productivity decline in the early 70s?

[Leonidas]

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Originally Posted by Martha Why does it keep going up?

I sometimes have problems with Paul Krugman's opinions, on most days he is worth reading even if it's just to get the contrarian view, but I remember that he once wrote something I thought was pretty pithy about this; "Productivity is not everything, just almost everything."

Productivity in business is determining efficiency based on outputs from labor inputs. In economics it is a leading indicator looking at employment and inflation in the economy. If an economy's labor costs goes up, but the productivity stays the same, you start looking for signs of inflation. If productivity goes up and labor costs stay the same, you start looking for what happened to all the folks who used to have jobs.

I think IT has had a big part in the productivity increases we have seen. But, I think the biggest benefit has been in effectiveness and quality rather than just efficiency. My agency started in IT in a big way in 1980 and in big jumps here and there since then we got to the point where everything was electronic. Gathering information and being able to retrieve it is a big part of the job but paperwork was always the bane of our existence. When I first started most of us did very short reports because we hated sitting in the car and writing it. When our report writing software came about the amount and quality of information in the average report increased many fold. All information is retrievable from any device hooked up to the system, either in the office or via an MDT in the car.

That increase in quality and efficiency are seen in all kinds of industries. One human being can control machinery that does perfect work all day long that used to be done in several days (with mistakes) by a whole crew of humans.

[Scrooge]

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Originally Posted by Martha Why did productivity decline in the early 70s?

Thankfully, overall productivity didn't decline. It rarely does for more than a short period of time. However, it didn't go up nearly as much as the market had expected based on prior performance. Naturally, market expectations had been built into stock prices.

Last I checked (which would be some 5-7 years ago), there was no universally accepted explanation for this phenomenon. All we know is that output per person (as measured by BLS in percentages of 1992 output per person) went from 42.049 in 1950 to 71.156 in 1968 and then:

1968 71.156
1969 71.106
1970 71.286
1971 73.890
1972 76.415
1973 78.383
1974 76.132
1975 77.715
1976 80.343
1977 81.321
1978 81.918
1979 81.509
1980 80.430
1981 81.831
1982 80.677

So we went from 42 to 71 in 21 years, and then from 71 to 80 in the following 14 years, which was obviously disappointing. And then productivity took off, jumping from 80 to 100 between 1982 and 1992.

Disclaimers: I am not an economist and measuring productivity can be quite tricky. See various BLS disclaimers and FAQs.

[slepyhed]

If a politician "throws a bone" to crony-contractor, then productivity has increased because this contract is more profitable than usual?

That would explain the vast amounts of pork comming out of congress. We want our leaders to do their part to ensure economic growth!

Meanwhile, what about the productivity of the federal government? Their budget has been getting bigger all these many decades, but they're still only governing 50 states.

[saluki9]

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Originally Posted by Martha Saluki, is there any breakdown by worker experience? My hunch is that baby boomers are very productive. At least where I work, the biggest dollar generators and hardest workers are those in their 40s and 50s.

Actually they do not

The muti factor data for non farm businesses isn't as detailed as many would like.