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Cliff Waldman, chief executive officer of New World Economics, explains how manufacturing labor productivity is measured, and why it’s such an important metric for assessing economic health.
Productivity is defined as “how much output you get for a unit of input,” Waldman says. And the most important input is labor. The growth of labor productivity and the growth of labor hours are the two components of the equation for long-term sustainable economic growth.
Strong productivity growth in manufacturing was a key factor in the dramatic growth of the U.S. economy for decades, but in the more recent past, productivity in manufacturing has stalled. Performance of that metric has been weak ever since the financial crisis that began in 2007 — in fact, says Waldman, U.S. manufacturing productivity has been falling. “That’s very concerning for manufacturing prospects into the long term,” he says. “It should gain the attention of policymakers more than it does.”
One might assume that technology, specifically manufacturing automation, would result in productivity growth, but that’s too simple an equation, Waldman says. Without a doubt, technology has been key in driving productivity, but it needs to be accompanied by a skilled labor force in order to have a long-term positive impact on economic performance. “We’re not going to automate our way out of our productivity malaise,” he says. “Too much goes into productivity beyond technology.”
There are three keys to driving productivity performance in manufacturing: investment in innovation, investment of capital, and a supply of skilled labor. “Capital investment spreads innovation throughout the supply chain,” Waldman says, while noting that the metric has been weak in the U.S. for some time. Also critical, he says, is public investment in innovation, with basic R&D as a percentage of GDP at its lowest level since the Apollo era.
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