What is in this article?:
- Increased Productivity is Key for Healthy Manufacturers, Healthy Economy
- Increased Productivity Leads to Reduced Production Costs
In today’s hypercompetitive global economy, even the best manufacturers need to continuously boost productivity to survive. However, a growing number of pundits, activists and policymakers now argue that productivity causes job loss and therefore is bad for the economy. They are wrong.
MIT professors Andrew McAfee and Erik Brynjolfsson have written one of the most prominent books making this claim, Race Against The Machine. In it, they state that “it may seem paradoxical that faster progress can hurt wages and jobs for millions of people, but we argue that’s what’s been happening.”
Other prominent academics have argued the same thing, including Paul Krugman, Richard Posner, and Brian Arthur. The popular press is also getting in on the bandwagon, with major features on CBS’s 60 Minutes, as well as in the Associated Press, The New York Times, The Economist, The Atlantic, andThe Financial Times.
Before you throw your smartphone out the window, however, you should take some comfort in the following: there is no scholarly evidence that increasing productivity increases unemployment or lowers total employment growth in an economy, except possibly in the very short term. In fact many studies find that rising productivity is almost always associated with lower unemployment.
Evidence from firms in a range of sectors likewise finds that while some firms shed jobs as they get more productive, a roughly equal number of firms actually add workers.
A review of U.S. history finds the same result. As the McKinsey Global Institute found, since the Great Depression productivity growth in the United States has gone hand in hand with increasing employment in the medium and long term.
Only in the short-term, 1-3 years, is there any evidence of “jobless growth”, and even then it is rare. Similarly, studies of nations around the world have found no causal link between productivity and unemployment, whether in developing nations or developed ones.