Wednesday, July 22, 2015

My Comment To Productivity Article In The Wall Street Journal

My comment to The Wall Street Journal article, "Politicians, Pay Heed to Productivity Problem: Boosting hourly worker output could resuscitate weak wage growth" by Greg Ip:
Productivity is best understood by components at the margin and not the whole or average. There is labor productivity. After each additional worker or hour worked, how much faster will the economy's output grow. There is capital productivity. For each additional machine, or capital investment, how much faster will the economy grow. There is total factor productivity (TFP). For each new unit of labor and capital together, how much faster will the economy grow than from the sum of the extra output growth from more labor and from more capital alone.

The most volatile and least understood of the three components is total factor productivity. Technology, laws, regulations and unknown factors affect total factor productivity in both a positive and negative way.

Skills, education, experience, illness, drugs & alcohol use, etc. affect labor productivity.

Useful capital investment requires a fair return, which is not expensed on the P&L, to be worthwhile, and incorrectly shown as profit.

[Unfortunately, The Wall Street Journal's comment size limitations forced excessive conciseness.]

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