Labor Productivity Going Forward
Labor productivity is in the mind of a lot of our businesses currently. The tightness in the labor market, supply chain disruption, and increase in commodity prices has a lot of business wondering how to make more with less. There is plenty of ways to debate how productivity should be measured, however when taking at Labor Productivity there are a lot of similarities between the productivity increases that were seen in early 2000s and during the 2008 financial crisis. One similarity is that the increase in productivity is crisis driven and that employers retain their more productive employees or departments and fail to rehire the least productive workers or departments back, second it might be result of increased investments in technology which allows employers to achieve more per employee.
Here are some of our suggestions on how to think about productivity moving forward:
- Just like previous crises big productivity gains are followed by collapses in productivity as more employees are needed to keep up with demand and new employees have to be trained and integrated into the business
- In real terms, wages and salaries have been little changed since the late 1990s which gives employers a lot of room to hire employees are relatively low prices at a current productive level
- Training and retention will continue to be an issue going forward as productivity gains experience dismissing returns at the firm and the macro level