Global Crisis/Innovation Blog

Productivity: Good News or Bad News?

By Shlomo Maital

    There are endless numbers of awful good news/bad news jokes.  Here is one of the worst.  Doctor: I have good news and bad news. Patient: What is the good news?  Doctor: You have 24 hours to live!  Patient:  THAT’S THE GOOD NEWS! WHAT IS THE BAD NEWS?  Doctor: I forgot to call you yesterday.

   In today’s global economy, productivity growth is one of those jokes.  The good news is that unlike all other global or local recessions, productivity in most countries has continued to grow strongly.  The reason:  Companies have been very quick to fire or lay off workers, right from the start, and the remaining workers, fearing for their jobs, have worked far harder and far smarter. 

  This is also very bad news.  Why?  

   It is true by definition that GDP growth is identically equal to a) the rate of growth in GDP per worker (labor productivity) plus the rate of growth in the number of (employed) workers.   If labor productivity grows as fast as GDP, then there is no need to hire more workers.  And that is precisely what is happening, in the US, Europe and China.

  The data?  The IMF has revised its 2010 GDP growth forecast upward for the world, to 4.1 percent.  Good news.  Almost all of that growth will come from productivity growth, rather than from new hires.  Bad news.

   In China labor productivity growth for 2010 is forecasted to grow at an astonishing rate of 7.7 per cent.  GDP will grow by 8 per cent. That means that employment will barely grow at all.  The upside of this is that employment will at least remain steady, without massive layoffs.  The downside is that there will be few new jobs for migrants coming from the West. 

  In the US, 2nd Q. 2010,  business-sector output grew by 3.7 per cent (good news) and all of that increase came from increased productivity (bad news for workers). 

   The implication for individuals all over the world, especially young people entering the labor market or planning to, is rather cruel:  Darwin’s survival of the fittest has come to global labor markets. In future, you will have to navigate your skills flexibly and rapidly, change them often, learn new skills and abandon old ones, and stay a step ahead of the rapidly changing labor and goods markets.  Those who fail will be unable to find gainful employment, and if they remain stuck in old patterns and old skills, they may never work again.

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