Case Study 10.2e "The Productivity of American Workers Soars in 2003" What are the benefits and costs of Producitivity?

The Wall Street Journal, USA Today, and Business Week were only a few of the publications that displayed large headlines in December of 2003 announcing the gains in productivity made by American workers in 2003.

Productivity is the output of goods and services per hour worked. Productivity outside of farming soared 9.4% in the third quarter of 2003. That was the highest gain since 1983, the Labor Department said. This figure is calculated by the Bureau of Labor Statistics of the U. S. Department of Labor.

Our capacity as an economy to produce goods and services (productivity) is determined by a number of factors including:

•  How much labor we have
•  How many hours workers work
•  The worker's skills and intensity of work
•  The amount of capital (money and equipment) workers have with which to work
•  Changes in technology

Also worthy of our attention, Gross Domestic Product rose by 8.2% in the third quarter of 2003. This increase was the largest single increase since the end of 1984.

Gross Domestic Product is the market value of all final goods and services produced within a country in a given period of time. According to the Bureau of Economic Analysis, the major contributors to the increase in real GDP in the third quarter were personal consumption expenditures, equipment and software, residential fixed investments, and exports. Personal Consumption Expenditures were directly affected by a one-time boost in consumer spending ignited by tax cuts initiated by President Bush and passed by Congress.

Manufacturing as reported by the Institute for Supply Management also increased at an unprecedented pace in 2003. The PMI index which is a composite of production, new orders, deliveries, inventories, employment and commodity prices increased.

"Based on this data, it appears that the recovery is gaining momentum. Indications are that the manufacturing sector is ending 2003 on a very positive note, and all of the indexes support continued strength into 2004," said Norbert J. Ore, chairman of the ISM Manufacturing Business Survey Committee.

Certainly it would appear that the economy showed solid indications of the first major recovery since the terrorists attacks of 9/11/2001 .

Benefits and Costs:

A country's standard of living is directly affected by its productivity. While standard of living is not an economic measure that has absolute and definable components, most economists agree that standard of living accounts for such factors as a country's nutrition, health care, literacy and the life expectancy of its citizens. The variation in standard of living in different countries bears a direct relationship to the productivity of the country's workforce.

As the average income increases, citizens can consume more of the world's goods and services. Likewise, a lower average income relinquishes people to a more meager lifestyle or consumer pattern. Many economists equate the standard of living gains to the productivity gains of a country or region.

Why is the productivity of Americans surging forward in 2003 even at a rate faster than many comparable economies in the world? Many economists have noted that the productivity of Americans may surpass that of their counterparts in other top-tier economies as a result of the tendency for Americans to work longer hours and take less vacation than workers in other countries. On average, U.S. , workers work about 20 percent more hours each week than their counterparts in Germany , Europe 's largest economy. Americans took only about 14 vacation days a year on average while an average of about 30 days is the norm in Europe .

Even more surprising to economists in 2003, was that fact that all of the productivity increases in the U.S. did not occur because of a substantial increase in employment. In fact the economic recovery of late 2003, was not accompanied by the usual gains in the employment market. It was largely a “jobless recovery.” Therefore it is fair to assume that the same number of workers were working harder or longer to achieve the gains in productivity.

While the gains in technology have been given credit for much of the gains in productivity during the last twenty years, during the recovery of 2003 there are many economists speculating that the gains in productivity may be at the expense of increased hours and the stress of competition. Technology makes it easier for many workers to extend their job past the normal business hours as they use their cell phones, e-mail, and faxes from home to extend their productivity. Government data does not account for these “extra hours” that are contributing to the increase in productivity at a cost to the employees' leisure time.

Even the total number of hours worked by working couples has increased according to a new study by the New York-based Families and Work Institute. In 1977 couples with children worked an average of 81 hours. In 2002, the average increased to 91 hours.

So are Americans making these record-setting gains in productivity because we are working harder, longer, or smarter?

Questions for consideration and research:

1. Are the costs of the increased productivity in America worth the gains or benefits in standard of living? Define the costs and benefits as you see them either on an individual or national scale or both.
2. Specifically, what benefits do you think the average American is gaining through the increase in productivity? Consider education, goods and services, freedoms, and lifestyle issues.
3. What is the difference between standard of living and quality of life? Which do you value more? Why?
4. Research using the Bureau of Economic Analysis web site, to determine the most current GDP and productivity gains. Report on your findings and analyze the factors that have contributed to the changes either upward or downward?
5. Do you think the economic recovery of 2003 will sustain itself through 2004? Why?