This is not an issue on which I’ve been impressed with the performance of either the PC or other economists who’ve weighed in to this debate (mostly associated with the business sector). As I point out below, my analysis is mainstream textbook orthodoxy, and led me to predict the productivity “slowdown” at a time when the PC and the others were proclaiming a miracle. But my arguments get even less attention now than they did fifteen years ago, when the PC was at least willing to reply.
If you are working harder, making more money, but enjoying life less, are you better off? More productive?
For one way of using these words, reflecting a market-driven society, the answer is ‘yes’ to both questions. To be ‘better off’ means to have more money, and to be more productive means to produce more goods and services, as valued by the market.
Surprisingly, perhaps, an economics textbook will answer ‘no’. If the extra stuff you can buy from working harder and longer isn’t enough to compensate you for the extra effort, standard economics says you are worse off (in the textbook jargon, your utility has declined).
As for productivity, it’s not the amount you produce, but the amount you produce per unit of effort. If you are putting in more hours, or increasing your pace along with your hours, to produce that last unit of output, your productivity is declining, not increasing.
The ideal is to work just long and hard enough that the extra money you could make by working more would not compensate you for any additional effort.
Genuine productivity growth, on the textbook view, doesn’t come from working harder or faster. Rather, the main sources of productivity growth are technological progress and the improved education needed to take advantage of that progress.
We are more productive than our grandparents not because we work harder, or do a better job of managing our business, but because we have better technological tools to work with.
This isn’t just a question about economic theory. Much of the policy debate in Australia today concerns our supposed need to improve our productivity performance. We have an entire body, the Productivity Commission, which is at least nominally devoted to the task. The commission has recently been engaged in vigorous debate over whether Australia’s productivity has indeed declined in recent years, as data produced by the Australian Bureau of Statistics would suggest.
So, it’s important to understand what the Productivity Commission means by ‘productivity’. Does it follow the textbook view, or is ‘productivity’, as so many Australians have come to suspect, just a codeword for ‘working harder’? The answer, unfortunately, is the latter.
The measures of productivity used by the Productivity Commission report the ratio of the market value of output to hours worked (inputs of capital services are also taken into account). But the commission is clearly of the view that productivity can and should be increased by making workers work harder.
Back in 1996, the commission asserted that productivity gains could be achieved not only through resource reallocations but through people “working harder and working smarter”. Fourteen years later, the chairman of the commission repeated an almost identical formulation:
Whether productivity growth comes from working harder or working ‘smarter’, people in workplaces are central to it.
The appearance of scare quotes around ‘smarter’ is revealing. Whereas in the 1990s this phrase was used in all seriousness, ‘working smarter’ is now more likely to be the punchline in a Dilbert cartoon. It is universally understood as a piece of management jargon, typically decoded as ‘we’re giving you more work to do with less resources, and it’s up to you to figure out how to do it’.
The commission’s leading expert on productivity measurement, Dean Parham, presented the position in more detail in a paper published in 2004. Responding to my objections that much of the apparent improvement in productivity in the mid-1990s reflected shorter breaks and a faster pace of work, Parham asserted:
Increases in work intensity through reductions in slack on work time or increases in pace of work would be genuine sources of productivity improvement.
The speedup in the pace of work in the 1990s, famously described by John Howard as a ‘barbecue-stopper’, appeared unsustainable to ordinary workers. Parham responded that while surveys showed an increase in workplace stress, “this does not establish that the stress has in general reached unsustainable levels”.
In reality, once the labour market improved in the late 1990s, it proved impossible to maintain the high stress needed to keep workers going at full pace and more, for long hours. Both the proportion of workers putting in more than 50 hours a week, and the pace of work employers could demand, started falling around 2000, and continued to decline at least until the Global Financial Crisis raised perceptions of insecurity.
The result has been a reduction in official measures of productivity. In reality, though, productivity has continued to improve. The decline simply reflects the reversal of the illusory and unsustainable increase in work intensity during the 1990s.
But the pressure to increase the pace of work never lets up for long. John Howard had a go with WorkChoices, but was resisted with some success by the ACTU’s Your Rights at Work campaign. Now the chorus of complaint about inadequate productivity, from employers and opinion-makers, is once again getting louder.
There is no reason to think Australians need to work harder and longer. On the contrary, we ought take some of the benefits of higher productivity in the form of more leisure and more civilised working conditions.