Productivity in comparison to Low Employment
Earlier this week, Trey Booth gave a great explanation about productivity in comparison to low employment. We are seeing a low number on unemployment but what Trey is saying is that the real number we need to focus on is productivity.
Why is Productivity Important?
Why is productivity so important? Because productivity leads to growth. So, GDP growth is really population growth plus productivity growth. How many workers are there and how productive each worker is and then if the worker is producing more per hour they work that turns into real GDP. With GDP growth you see earnings for companies increase and then you see salaries go up. For the past few years, we have seen no productivity growth.
We’ve all heard talk and concern about robots taking our jobs. If robots are taking our jobs, they aren’t very good robots because they aren’t productive. I’m less concerned about robots taking jobs, I’m more concerned about the types of jobs that are being created. Historically speaking, when unemployment goes down and the job numbers goes up, then GDP goes up. However, we aren’t seeing GDP going up now that unemployment is going down.
There are several good theories on why this is the case, currently one that makes a lot of sense to me, is it is the type of jobs that we are creating.
Types of Jobs being Created
You can either make something or watch someone make something. We are creating a lot of jobs where people are just watching other people make things. There is a lot of compliance in banking, human resource staff and EPA staff within the oil industry. These are good people, helpful people but they are not making the company more productive. So you have an extra employee which is not an extra level of productivity. It may help you keep the customers you have, reduce the cost of your regulations, and keep the government off your back but it is not making the company productive. Until we reduce the unnecessary regulatory burden on these companies that have to hire people to insure they are in compliance, we have jobs that while they employ people which is great but net/net to the economy, we are not better off.
Productivity and GDP Growth
We have had this huge fall in unemployment from 10% to below 5% but yet we see no growth. This is because people are not being more productive. If they aren’t being productive then there is no growth. We are worried about wages going up but wages aren’t going up so there is no inflation. We are worried about robots taking our jobs but we aren’t being productive enough to require that. We have excess capacity.
You can get to 3% GDP growth, if you have between 1% and 2% growth in population all you really need is a 1 to 2 percent growth in productivity it’s not that hard we’ve done it in the past. Yet, right now, for some reason, we believe it is impossible. We are ecstatic about productivity going from negative to flat. It’s really embarrassing for our country with our level of advancement that we aren’t getting productivity above zero. I think we can we just need to watch for ways that we are unproductive.
In our vlogs, we’ve talked about being in a recession of confidence, what you are saying is that the fact that you are considering lowering regulation has freed corporations to say we’ve got to become more productive. Exactly, and we don’t have a training lag. You take employees who know your company who are already working for your company and place them in different positions, positions which affect productivity which will make the company more productive. The company doesn’t add any additional costs, they just improve productivity which makes earnings go up and in turn improves productivity and GDP.
Greg Powell, CIMA®
President and CEO
Wealth Consultant
Email Greg Powell here
Trey Booth, CFA®, AIF®
Senior Vice President
Wealth Consultant
Email Trey Booth here
Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Economic forecasts set forth in this presentation may not develop as predicted.
No strategy can ensure success or protect against a loss.
Stock investing involves risk including potential loss of principal.
Podcast: Play in new window | Download
