Work-From-Home Trades Prosperity and Productivity For Leisure

Or: why productivity does not measure technological productivity

Yesterday data came out showing an enormous drop in productivity in the United States. Year-on-year it fell over 5%. As the chart below shows, that is a big drop.

Does this mean that we lost technological progress? After all, most economists seem to think that productivity growth is a proxy for technological progress. So, when the spinning jenny was introduced in 1765 and vastly increased the rate of production of cloth, this was a great leap forward for productivity. No argument there. But the economists would then assume that this increase in productivity would register in their productivity metric.

Yet, this metric is not all it is cracked up to be. It is simply GDP divided by the labour force. That is all. It is not based on sophisticated surveys of technological progress. It is just one macroeconomic series divided by another.

So, the productivity measure could be impacted by any number of things. One of these is labour intensity. That is, how hard labour are actually working. We can see this clearly if we reconstruct productivity numbers from the WWII period. I co-wrote a paper with my old colleague James Montier where we did just that. Notably, the BLS does published the statistics needed to contruct this series — although they are hard to find — but they do not publish the series. Are they embarrassed perhaps because once you see the chart you can never look at the productivity series the same way again?

So, looking at this series we are supposed to believe that technological progress increased around 10% in three years of the war — a stonking 30% rise in mankind’s technological endowment! — and then collapsed 15% during demobilisation? Yeah, right. What we are really seeing here is a change in labour intensity. After the war, as the wartime propaganda dissipated and the wartime spirt retreated, people stopped pushing themselves so hard. It’s as simple as that.

This brings us to the decline in productivity we see today. It is best read as a decline in labour intensity. The pandemic has given workers a lot of excuses to shirk. We all know this. It has also introduced the dubious ‘innovation’ of work-from-home which may well work for people doing, say, independent research and writing. But it probably does not work well for most other professions, especially those where interpersonal interaction is key. This is so obvious it is remarkable that it seems taboo to state it today.

In effect, the recent productivity declines are a trade-off taking place en masse. We are trading prosperity for leisure. But we are not conscious that we are doing so. The consequence is obvious: rising prices. And knowing human nature you can be sure that the same person wrapped up cosy this winter working from home will be complaining next year that the cost of living is rising.

Plus ça change, plus c'est la même chose!