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50 years of productivity improvement
There is already a lot of ink about the dangers of rising wages as a source of inflation. The problem with focusing on input costs is that it is incomplete. To fully understand wages and labor, you need to understand the other half of the equation: output.The biggest single output driver today is technological enhancement productivity.
Deciphering how much output the company gets for each dollar of labor helps to answer “Temporary or permanent“Has become a predicament necessary In the media.
To be sure, prices have risen, and some have risen: crude oil prices exceeded $83 and returned to 2015 levels. Consumers are bored at home because of the abundance of cash. Soon after the lockdown, retail sales began to exceed pre-pandemic levels, pushing prices up further. Wages, especially those in the lower half of the economy, have risen; I expect these gains to be sticky.1 For understaffed companies Must hire, $15 an hour is becoming an “unofficial” minimum wage, especially for restaurants and retail stores.
But the current inflation debate is overly focused on price inputs. Lines up on the Pacific Ocean waiting for ships to unload at Long Beach Pier would have a great visual effect, but this may prove to be a temporary phenomenon that will improve on its own. By ignoring output—the income a company earns from labor—we miss the most important part of the inflation equation.
That half is driven by technology.Influence already Deflationary For decades, Because at the same wage level, employees’ work efficiency is much higher. When productivity exceeds the rate of wage growth, the possibility of sustained wage-driven inflation will decrease.
Say differently: Supply chain price increases are often temporary, but productivity increases will continue.
Economist since 1987 Robert Solow quipped “You can see the computer age everywhere, but in productivity statistics. “
This is an old joke: an old fish asked two little fish, “How is the water?” One little fish turned to the other and said, “What the hell is water?“
Productivity increases are everywhere, and everywhere, we just ignore them.
do not.
The world today is very different from the world in 1987. Cumulative growth, Mainly driven by computer technology.During the months of the pandemic, when working from home, productivity gains were kicked even higher: labor productivity, metrics Hourly output of all employeesDuring this period, compared with previous years, it has almost tripled.
It’s not just that the productivity of white-collar workers has increased. Almost every field can claim to have improved efficiency and output driven by certain technologies.
Take the restaurant as an example. This is a challenging business and has proven itself particularly resistant to increasing productivity. But even restaurants have adapted and become more efficient, partly because of the industry’s response to Covid. Today, technology dominates almost every aspect of the business, from reservations to menus, to ordering and paying checks. The end result is to provide more meals, higher income per restaurant, and fewer employees.
Similar applications Rethy with Open table Automate the booking process; the QR code eliminates the need for printed menus, allowing instant updates of daily products. The waiter takes orders on the iPad, reducing errors (and wasteful returned dishes).Mobile Point of Sale System (mPOS), such as square or insist Turn the process of paying checks into a single operation instead of a time-consuming three-step transaction. All in all, restaurants supported by modern technology can serve more diners with fewer employees every day. There are upfront costs for technology and continuous training. But the increase in productivity will bring more revenue to the restaurant at a lower total cost.
Multiply that by 100 industries and you will start to see the impact on output.
Productivity is still famous Difficult to measureBut we just need to look around and see how much productivity has increased for each of us in the past few decades. These benefits touched every department and almost all jobs. We found that the difficulty of tracking is more of a measurement problem than a function of productivity itself.
Wage income is a Reboot, And supply chain price increases may prove to be temporary; on the other hand, productivity increases will continue forever. This is the result of deflation, not inflation.
Before:
Change the balance of power? (April 16, 2021)
Deflation, interrupted by the spasm of inflation (June 11, 2021)
Inflation reset (June 1, 2021)
Elvis (your waiter) left the building (July 9, 2021)
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1. It can be said that wage increases are just a catch-up, a belated price reset. We can contextualize it in this way: the low minimum wage, which has lagging behind everything else for a long time, artificially suppresses wages and inflation. The current surge in wages shows that the unsustainable low wage rate is no longer sustainable. This is a completely different conversation and it deserves to be published separately.
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