Productivity gains versus employment

[Tonytn36]

Originally Posted by John in CA

This may not be true across industry as a whole, but where I work the decision to invest in measures to increase productivity is driven only by extreme upticks in demand for a product. IOW, by the time the decision is made to seriously tool up, we can all rest assured that the demand is so high that it's going to take the new equipment AND all the manpower we can muster to keep up. Do those others of you in production environments find this to be typical?

In our business (Automotive) the productivity increases are driven by the requirement for cost reductions. Our customers typically show up every 6 months demanding a price reduction, of some sort. The only way to stay in business is to eliminate your manufacturing costs as aggressively as possible.

The consequences of telling the customers "no", is the work goes to someone who will, whether it be down the road, or across the ocean.

[adh2000]

Since we have all this technology and machinery creating all these increases in productivity why can't we all just take some time off? It doesn't take very many people to grow all the food we need, build all the housing we need, and make all the things we use. So how about if we all just work 3 or 4 day weeks?

[jim rozen]

There's over ten percent of the folks in the US, 'taking some time off."

Trouble is, they're not paid while doing this, and they're not buying anything
because they have no money to do so. The rest of us have a sharp eye
on possibly joining that ten percent, so we likewise don't spend anything
because ya never know, we might be needing the few pennies we have
socked away under our mattress in case that happens.

Productivity's great. But consumer spending won't happen in this scheme.

Jim

[adh2000]

I'd guess at least 10 percent of the population is unemployable, just look around you. If you had to pay these people out of your own pocket how many would you take with you? Anyway the question was more philosophical, like instead of having 10 percent of the population unemployed why can't we have 100 percent of the population working 90 percent of the time. In grade school in the 1960s I remember our teachers telling us how machines and automation would mean people wouldn't have to work so hard and we might see a four day work week. Well, what we got is some people working a zero day week and others working a seven day week.

Alan

[bryan_machine]

adh2000 -

The 10.2% unemployment number you see is really pretty much about people who ARE employable, and indeed where employed recently. New unemployment claims data is strictly about such people. The unemployable part of the population (and it's more than 10% - consider youth under 15 and the very elderly, etc.) is well larger than 10%. In fact I saw a blog somewhere today with a labor dept. chart showing the highest percentage of the population privately employed, ever, was <60%. (Stay-at-home with the kids folks don't get counted.)

As for the "why not work fewer hours so everybody gets a job" theory?

Well, they've tried that in Europe, hasn't worked out particularly well. They (France, etc.) often have more unemployment than we do.

One reason is that for most jobs most people are not actually interchangeable. And the more skilled the job, and the more it depends on context, the more this is true. So there's actually been a split where jobs where people worked <40hrs a week have lost ground, while jobs where people work >40 or more so >50hrs a week have been the big gainers. In fact, if your job is easily divvied up by the day or hour among however many people, that's a bad sign.

Keep in mind too that many jobs don't run constant flat hours work loads. That is, by their nature, they are NOT 40hrs a week 50weeks a year.

[dp]

Originally Posted by bryan_machine

This feeds into the productivity versus jobs issue - 10 automated welders, perhaps 9 people where before there were 10. But how many weldments, of what quality, with what predictability of timeliness, were produced? So maybe they replaced more than 1 welder, because to make the same output would have required 20. But maybe that's pointless because you could never have sold the output of 20 welders at the prior labor burden, while you can easily that output with the lower labor burden.

That is called opportunity. Opportunity increases when costs per unit of output go down and customers are aware of this. Couple that with increased productivity (robotics) or decreased cost for productivity (people working for free) and you have a pretty good gig.

Opportunity and working for less are probably more likely in a non-union shop. Working for less in this case does not mean you're taking less home - only that you are not at home as much.

[landm1]

Here is more drama,

Ran an add online for some part time shipping & recieving help. To narrow thing down to a reasonable competition I said apply in person between 8 and 10 am. We also wanted some computer experience.
I know things are a litte hard out there right now but some of he applicants had to call for directions, so much for mapquest. Most did not show up during the requested hours.
We also posted that we wanted good communictions skills, not that I have any. The odd thing was that the ones who struggled wth the english all wanted a business card,I am not sure who they were reporting to.

One woman did show up right at 0800, she dressed casual because we posted a picture of our shop and she claimed she wanted to give the appearance of being "ready for work". She got the job, a lot of these other people were not kids, I have no idea how all of these people are going to feed themselfs.
I think we are a lot smarter and efficent comming out of this recession, we will compete and we know we are going to be fine, a lot of these loosers had "realtor" as a line of work, I guess we are all going to wish for the "good old times to come back".
Oh yea, we put our first Mazak MSY on he floor a few months ago, no pain, no gain!

LandM-1

[PeteM]

Originally Posted by adh2000

Since we have all this technology and machinery creating all these increases in productivity why can't we all just take some time off? It doesn't take very many people to grow all the food we need, build all the housing we need, and make all the things we use.

Actually, a lot of "primitive" societies managed to do just that, especially if they lived in a fertile area with a temperate climate. Some built their housing, fed themselves well, and managed a fairly impressive tribal culture on 3-4 hours a day of work. So, it's a reasonable question.

[jim rozen]

Yeah, that ten percent number only basically counts the folks who were laid off
within about four months. So they WERE working as of four months ago. That
shoots that idea in the foot, that they're not employable.

If you include the number who are currently working part time, and WANT full time
employment, I think the number heads up to about 18 percent or so.

Then you include the folks who have been without work for so long, they've stopped
looking.

Kids under 16, old guys over 50, well I think they're not part of the stats at all.

Jim

[PeteM]

Another misleading part of the statistics is the dramatic increase since 1990 or so in numbers of people who are self-employed (consultants, service workers, trades, laborers, independent sales reps, one man machine shops, etc. etc.). Virtually every industry uses consultants rather than new hires to handle extra work; and these consultants are the first to go in a downturn.

Years ago most everyone worked for a large company. Today there are nearly 20 million US businesses with NO employees. I'd hazard a guess that a majority of these are now seriously under-employed to effectively unemployed AND that few of them show up in the unemployment numbers.

[Joe D Grinder]

Originally Posted by PeteM

Another misleading part of the statistics is the dramatic increase since 1990 or so in numbers of people who are self-employed (consultants, service workers, trades, laborers, independent sales reps, one man machine shops, etc. etc.). Virtually every industry uses consultants rather than new hires to handle extra work; and these consultants are the first to go in a downturn.

Years ago most everyone worked for a large company. Today there are nearly 20 million US businesses with NO employees. I'd hazard a guess that a majority of these are now seriously under-employed to effectively unemployed AND that few of them show up in the unemployment numbers.

I think that you are partly right, partly wrong.

I have been a one-man band for the most part since 1978, and have dealt with a lot of similar businesses. You are very correct that few ever show up on the unemployment roles, but it is mostly because they are almost never unemployed if they remain small and flexable. I can't speak to the consultants and those who rely on one or two big businesses for thier income, but those who have a diverse customer base and/or product/service line seem to always be able to shift their efforts or customer base a bit and keep on truckin' when the pinch is on.

Of course, the down side is that nobody is going to be earning me money if I don't do it myself, but the upside of staying free and flexible is worth it, in spades. Business continues to increase modestly over the last couple of years, with modest changes in what we do and who we do it with, to match the times.

Can't ever stop thinking, though.

As to increased productivity bringing on increased employment, it certainly can. There was a small tool line that was made by a lot of folks for a lot of years, with each tool costing several bucks. Everybody in the business had a choice whether to buy ANY of these tools and use them, and not many did.

We came along in the late 70's and figured out how to make them faster and better. NOw, EVERYBODY can afford to have a handfull in their box. Not only did we expand sales nationwide, we produced them for less per tool. Not only do our direct customers benifit, but several dealers sell them at quadruple the price we charge them, to those who don't seem to know the difference. Everybody is happy, and more tools are being made, sold and used than ever before...........Joe

[motion guru]

I know that much of the work that our company does results in fewer people required to do the same amount of work. In lumber mills - you can process a log into a board with 10% of the number of people required 20 years ago.

A mold for a boat is now made using a solid model and a 20 foot by 80 foot 5-Axis millng machine from start to finish in a matter of weeks with at most 3-4 people involved at any given time compared to months and months with dozens of laborers using traditional methods a few years ago. And given the housing market - there are now literally hundreds of mills throughout the country being shuttered - way too much capacity that will likely never be needed.


Re unemployment . . . Jim, you are spot on with your 18% number. Here is a snippet on that topic from a weekly newsletter I get from John Maulden -

The Ugly Unemployment Numbers

The headlines said unemployment, as measured by the “establishment survey,”
was down by 190,000; and even though that was slightly worse than forecast, market bulls were cheered by the fact that the number was not as bad as last month’s. It is an improvement that we are not falling as fast.

Well, maybe. What I did not see in many of the stories I read was that the
number of unemployed actually soared by 558,000, to 15.7 million, as measured by the household survey. The establishment survey polls larger businesses; the household survey actually calls individual households.

Let’s look at the real number in the establishment survey. If you don’t seasonally adjust the number, the actual change in unemployment for October was
641,000, or about 450,000 more than the seasonally adjusted number. And the Bureau of Labor Statistics added 86,000 jobs that they simply guess were created through the socalled birth-death ratio. Interestingly, the birth-death ratio number is not seasonally adjusted, so it is just added to the unemployment number.
http://www.bls.gov/web/cesbd.htm

The total (U-6) employment rate is at a record high of 17.5% (this includes
those who are part-time for economic reasons). There are now over 10.5 million people who have lost their jobs since the beginning of the downturn.
My favorite slicer and dicer of data, Greg Weldon (www.weldononline.com),
offers up an even more horrific number. As I have noted before, if you have not looked for work in the last four weeks, the BLS does not count you as unemployed.

Quoting Greg:
“Moreover, when we combine the monthly change in the number of Unemployed,
with the number Not in the Labor Force, we might consider the result to be a proxy for the actual ‘change’ in the underlying labor market situation … in which case, October’s figure of 817,000 represents the fourth LARGEST yet, behind last month’s (September’s) second largest figure of 1,021,000 … for a two-month combined figure of 1.838 million, in newly Unemployed, or no longer ‘in’ the Labor Force …

“… the second LARGEST two-month total EVER posted, barely trailing the
December-08/January-09 total 1.955 million.

“Bottom line … basis this measure AND the ‘Total Unemployment Rate,’ we
could conclude that not only is there NO ‘improvement’ in the labor market, but
moreover, that it continues to DETERIORATE, intently.”

You can read the entire missive here . . . http://www.frontlinethoughts.com/pdf/mwo110609.pdf


We made the decision a few months ago to cut everyone's compensation 20% rather than cut the workforce 20% - I hope to change this to 10% starting in December as we have had a good bank of orders come in recently. Even still, the company will be under water for this year as it was last year. When things are slow - we have chosen to rebuild our own machines, push R&D initiatives and "buy" jobs that keep the cash flow going while working toward establishing ourselves with new customers. It is a cut throat world - and we intend to emerge from the downturn with as many of our employees as possible.

If the recovery does happen in 2010 - we will have better machines, new customers and employees with that much more experience. If the recovery doesn't happen - we will be in deep kimchi.

[PeteM]

Originally Posted by Joe D Grinder

I think that you are partly right, partly wrong.

Could be.

I don't think anyone keeps track of the business activity level of one-person businesses whether tradesmen, shop owners, laborers, consultants etc.

Do have a bit of data, though very limited, behind my thinking that a majority (e.g. greater than 51% or so) of self-employed folks are now significantly underemployed. At least once a week I grab breakfast at a great local place and usually sit at a shared table. Lots of friends and new friends show up; a variety ranging from adjunct prof's (virtually self-employed, no benefits) to tradesmen, computer consultants, CPA's, recruiters, builders, musicians, retired engineers, rocket scientists (really) etc. etc. Most every week we do a "how's business" poll. About 1/4 say "thankfully we're, busy." About 1/4 say "enough business to get by, but no backlog." Fully half say "business is lousy."

Some of this is just luck, not talent. I know a couple of extremely talented cabinet makers. Over the past two years, one will have just stumbled onto a great job while the next fellow has nothing for a while. Same thing with a couple of one-man electrical contractors I know; little dribbles of work until an increasingly-rare big job comes along.

Have also seen a couple folks (e.g. freelance graphic designer, a PR person) that used to show up. They say they can't justify the cost of eating out.

There are a lot of one-man shops on this board. I'd guess that less than half are staying as busy as they'd like, judging from various threads. Some, despite their talent, are struggling. For example, it must be mighty hard to make a living as an independent these days in Detroit. About the only answer for many is to move.

Anyhow, some are doing well. Others have had to cut way back, drop health insurance, etc. Best as I can tell it's more than half that have felt some significant impact.

[jim rozen]

The comment above reminds me of the guggenheim's Balboa, spain, building.

It was made using large stryofoam blocks as molds, which were machine by a large
CNC milling machine. Each mold was used, and then re-used for a larger block
for the next go-round.

The building literally went from the CAD tube, to concrete, with no paper involved.
The joints were apparently so tight they needed no caulking or adhesive.

I hate to see unemployment like this, it is so tempting to blame it on one political
party or another. He did it/They did it, but it seems to me this is a fruition of
productivity gains which eliminate jobs. Also the offshoring, which eliminates
jobs.

In the end you have nobody left to buy the goods made more efficiently, or
cheaper, because nobody is working. The econcomy goes into what might
best be described as a death spiral.

I think that unless the US makes its collective mind up to do something fast,
it's going to steepen and worsen. Short of employing lots of workers in an
agrarian system, I don't know what that would be. Possibly some sort of
CCC-type program, or national service for young adults.

Jim

[motion guru]

Interesting I was reading another thread asking for advice . . . buy a better faster machine or run the old machine two shifts and hire another body.

The overwhelming advice offered was . . . "Buy another machine"

Jim - I think we will look back on the turn of the century as "the good old days" - the way the deficit is now snowballing - the only way we can "earn" our way out is to become a producer of items that are desired by the emerging economies in China and India. And we lack the natural resources and manufacturing base to be able to do that.

This economic downturn is going to be a long hard slog and I doubt we will see less than 10 percent unemployment for several years.

[metlmunchr]

Someone mentioned this TV show "Schmatta: rags to riches to rags" in another thread. I watched it last nite and thought it was worth mentioning again. Its on HBO in the On Demand (or whatever your cable company calls it) section so you can watch it anytime.

Anyway, the program is about the garment mfg industry in NYC, from its inception, thru the sweatshop era, eventual unionization due to sweatshop conditions, and continuing to the present when its all pretty much gone.

The consistent theme, from workers, supplers, and sewing shop owners, is that greed driven outsourcing killed business.

One particularly appropriate comment came from a guy who owned a business that supplied some specialty items to the garment trade. He said "They keep telling us to just give it time and everything will be okay. Meanwhile, we're trying to feed our families, pay our mortgages, and send our kids to college. They may as well be telling us to hold our breaths for half an hour and they'll give us each $10 million. Long before the half hour's over, it just doesn't matter."

Maybe I'm missing something, but I don't see increased productivity as a problem that destroys massive numbers of jobs. Of course there are instances where processes are mechanized and manpower requirements fall pretty drastically, but it seems a lot more technology is aimed at helping workers work more efficiently as compared to the amount that's aimed at mass replacement of workers by machines. I can't remember passing a million sq ft of shuttered plantsite and thinking Damn, they got so productive they just closed the place down. Sure do pass plenty of them regularly though that are monuments to the wholesale shipment of jobs to the third world.

[Boris]

Originally Posted by motion guru

Interesting I was reading another thread asking for advice . . . buy a better faster machine or run the old machine two shifts and hire another body.

The overwhelming advice offered was . . . "Buy another machine"

And we all know the reason for that
The machine wont go on vacation, have a monday hangover, slacken off on a friday afternoon etc etc etc

Lets face it, we've all worked with people who we think
"If only we could replace them with a robot"*

Boris

*Or fresh air in some cases

[jim rozen]

"I can't remember passing a million sq ft of shuttered plantsite and thinking Damn, they
got so productive they just closed the place down."

Nomination for the best comment of the thread.

Jim

[bryan_machine]

Another fine thing to think about....

A fair amount of the misery is associated with the collapse of a bubble. So for example, a lot of people using a lot of not very sound RE deals raised a lot of cash via debt, and among other things, bought cars at a quite a dramatic rate.

Now that has to be unwound. And so there will be a lot of excess capacity in car manufacturing (on a world wide basis!) for some time.

Worse, there is a kind of "backlash" or "whip back" which means that consumption (for example, cars) will fall below what it would have been had the growth rate been normal.

Eventually, growth in population, growth in real wealth in the economy, etc., will raise demand.

As for offshoring - that story is deep and complicated. Some of it will come back. Some of it was botched. On the other hand, the margins it sometimes allowed served investors, which likely include your pension fund and insurance company.

And sometimes there's a back story. I know of one large software house that opened a division in India. Part of that was visa problems. Part of it connections. And part of it "if you want to sell here you must hire our people". (Did Boeing *really* want rough processing of Titanium in Russia? Makes some sense - but how much "you hire our people or you don't get the metal" pressure was there?)

But "I can't remember passing a million sq ft of shuttered plantsite and thinking Damn, they got so productive they just closed the place down." is totally true.

In fact, "they couldn't compete with ...." or "they didn't keep up with ..." is what we often think.

Just as unions have done good and evil, and management for profit has done good and evil, out sourcing and off shoring have done net good and net evil. But none of that resolves the pain of somebody unemployed by them.

[bryan_machine]

Actually, another strong pattern goes like this.

Entity A becomes more efficient. As part of this, they lay off, say, steam fitters. The laid off steam fitters have a hard time retraining, and suffer economic misery.

But A is much better at shipping widgets people want, and A's total employment goes UP, in fact their employment in the USA goes UP. As do average wages. But there are no more steam fitters. There are designers, accoutants, account managers, brokers, ad people. More of the 'service' jobs that surround manufacturing - on the high margin front and back of the curve.

So, this is a net gain for A, for the US, and perhaps the whole world. But a real downer for the laid off people.

So yes, productivity gains will tend to increase employment over time, but the jobs created may not be jobs that the displaced can do. So it can create net job growth on the whole, but gross job loss for some groups.