Working Better or Just Harder? By STEPHEN S. ROACH
The United States ended 1999 on a truly spectacular note -- two consecutive quarters of close to 5 percent growth in worker productivity, according to government figures reported last week. The long boom, which many economists attribute largely to growing productivity, seems to be moving into uncharted territory. Little wonder, with each worker producing more and more per hour, that inflation remains at bay, or that corporate earnings and the stock market continue to surge.
Yet it doesn't take much detective work to uncover a troubling aspect of the productivity miracle. In the late 1990's, productivity sped up fastest in the service sector -- transportation, public utilities, trade, finance, insurance, real estate, and a broad array of professional and business services. And this is precisely the kind of work where traditional measures of productivity may be least reliable.
Collectively, this segment of the economy employs 77 percent of the part of the work force that is not in government or on farms. And, contrary to stereotype, these people are not, for the most part, low-paid, unskilled hamburger flippers. More than two-thirds of them are in white-collar jobs. And nearly half of those -- managers, executives and professionals -- are knowledge workers, the largest occupational category in America.
These people are central to the productivity equation. They are engaged largely in cerebral tasks. These tasks take time -- and often plenty of it.
Yet you would never know that from government statisticians. The government holds that the average workweek in the service sector is 32.9 hours; that's no different than it was 13 years ago and is actually about five hours shorter than in 1964.
I have long harbored the suspicion that these numbers are ludicrous. Surveys by the Labor Department as well as by groups like the Harris Poll suggest that people in these jobs work a good deal longer than the official numbers imply. So does the anecdotal evidence all around us. The dirty little secret of the information age is that an increasingly large slice of work goes on outside the official work hours the government recognizes.
Courtesy of laptops, cell phones, home fax machines and other appliances, knowledge workers are now online in cars, planes, trains and homes, virtually tethered to their offices. The "24/7" culture of nearly round-the-clock work is endemic to the wired economy. No one doubts that the hard-working people in the service sector are getting more done than they used to. But improving productivity is not about working longer; it's about adding more value per unit of work time. To the extent that work time is being understated, productivity is overstated.
Assessing productivity on a farm or in a factory is relatively easy. The output is easily measured: so many bushels of wheat, so many cars off the assembly line. So is the work time, since employees are paid by the hour and their time is carefully documented. But knowledge workers add value not on the basis of how much they tap with their fingers, but by what goes on between their ears. And many work on salary, putting in the hours they or their supervisors deem necessary to get the job done, rather than sticking to the schedule of 40 hours a week or so for which they are nominally paid. Our methods of measuring productivity may simply not apply to them.
Many experts attribute the rise in productivity to the breakthroughs of new information technologies and the explosion in doing business online. Over the long sweep of economic history, technology and increased productivity have gone hand in hand.
But that is probably not the case today. Absent genetic re-engineering, workers who think for a living may simply not be able to boost their efficiency like workers on the factory floor, no matter how sophisticated their tools. Nor is it clear that the Internet explosion has reached the critical mass to make it a really significant factor in the recent spectacular growth of productivity; e-commerce, totaling an estimated $150 billion in 1999, is still puny in the $9 trillion American economy.
The arithmetic of the productivity renaissance hangs together only if you believe that the white-collar, knowledge-intensive service sector is at the forefront of economic dynamism. But if productivity growth in the service sector is as overstated as I fear, the arithmetic breaks down.
In looking back at the miracles in Asia before it fell into deep recession in 1997, some have argued that the region's leap in productivity was "more perspiration than inspiration" -- in other words, pushing people and machines to their limits rather than discovering smarter ways to run economies. Acceleration of productivity growth through hard work alone isn't sustainable: people simply can't work harder and harder indefinitely.
That's a lesson that should not be lost on America and its brave new economy.
Stephen S. Roach is chief economist and director of global economics for Morgan Stanley Dean Witter.