Contrary to the microeconomic/market approach, my take is that productivity is very much a macroeconomic issue. In this regard, I side with post-Keynesian economists Nicholas Kaldor and Robert Eisner, both of whom argued that the level of employment and the degree of competition in labour markets have an incidence on productivity and overall growth. James Galbraith summarizes this point succinctly when he argues that
...full employment production foments ample competition in product markets, high rates of technical change, and declining costs, as business seek ways to save on scarce and expensive labor. In other words, productivity growth accelerates because of full employment itself. (emphasis added)
Now, it's important to recognize that employment growth irrespective of the type of employment probably won't do much to increase productivity. As highlighted in the OECD report cited above (and implied in the quote by Galbraith), the type of employment growth is a critical factor impacting on productivity.
For this reason, it is best if policymakers seek to prioritize employment growth in the manufacturing sector, the sector that is most amenable to improvements in productivity (see here for more on why manufacturing matters for productivity growth).Read it at Fictional Reserve Banking
Employment and productivity growth
by circuit
“it is best if policymakers seek to prioritize employment growth in the manufacturing sector, the sector that is most amenable to improvements in productivity..” That’s nonsense.
ReplyDeleteThe basic purpose of economic activity is to produce what the consumer wants, not to maximise productivity for the sake of it. If it looks like productivity in microchip manufacture can be increased twenty-fold, would it make sense to produce thousands of tons of microchips that nobody wants?
I think that is an extreme example, Ralph. Government constantly encourages some industries and discourages others. Each regulation, expenditure and tax has implications for the mixture of products and services produced in a country. The government can have a strategy to ensure their influence on markets achieves social goals.
ReplyDeleteIt's Fictional Reserve Barking,
ReplyDeletenot Fictional Reserve Banking.
"what the consumer wants"
ReplyDeleteRalph, isn't "what the consumer wants" often times what the corporates want the consumer to want? The 'genius' of advertising is to make consumers think that they actually desire things such as more cupcakes, visits to the spa and trips on cheap cruiselines. Should the economy be left to run along these lines?
In any event, meeting the needs of consumers and seeking to promote and maintain a manufacturing base are not incompatible goals. For from it.
A lot of the problems of the US economy can be trace 1) to Madison Avenue, which pioneers advertising in the 50's and 60's based on new research in cognitive bias, and 2) to the proliferation of consumer credit with the introduction of the credit card by Visa, which went viral in the 70's. The national mindset got skewed as a result and a lot of what has happened since is uneconomic, based on irrational behavior.
ReplyDeleteThe nonsense is in Ralph's comment to the FRB post. It's obvious to anyone who follows one of the best Canadian post on MMT that the author intends manufacturing as demand driven. One thing about Tom Hickey is that he reads his recommendations before he suggests them. And his suggestions are always quality!
ReplyDelete