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Commentary By Oren Cass

How Can Government Help Boost Productivity?

Economics Employment

In a recent issue of National Review (“Toward a National Productivity Strategy,” December 31, 2016), Robert D. Atkinson outlined a limited but important role for government. The editors asked policy experts for their thoughts.

Is Unemployment Productive?

Are unemployed workers a good thing? The math of productivity says yes: Every time a worker with below-average output per hour exits the work force, economy-wide output per hour increases. Ban low-wage work entirely and “productivity” would skyrocket. So would prices. Total output and standards of living, especially for lower-income households, would fall.

Perhaps that seems a reductio ad absurdum, undermining a sound principle by taking it to a logical extreme — except that, in his case for a national productivity strategy, Rob Atkinson embraces it: “The former CEO of McDonald’s reported that, in response to the possibility that the minimum wage will be raised to $15 an hour, McDonald’s began accelerating its deployment of self-serve kiosks and other automation technologies,” he writes. “Wonderful! Fewer low-wage jobs.”

Is that “wonderful”? McDonald’s can now serve the same number of customers with fewer hours of human labor. Perhaps the restaurant will replace four or five cashiers with a single IT technician and some expensive equipment. In the standard economic formulation, we have achieved “productivity growth.” But if the technology is deployed only under threat of a government ban on low-cost, low-productivity labor, presumably that means it is more expensive than the cashiers that it will replace. Provision of fast food to the public becomes less efficient.

To generalize this example: A $15 minimum wage is a ban on low-wage labor. If government could command by fiat that all workers shift into higher-productivity jobs justifying a higher wage, that would be terrific. But if a low-wage worker could secure employment in which his productivity justified a wage of $15 per hour, he presumably would not have been working at the lower wage in the first place. If our enthusiasm for productivity obscures the value of work that is less productive — work that, for many people, provides an initial step on the economic ladder or even a longer-term source of self-sufficiency — then we have lost sight of the path toward long-term prosperity that encouraged a focus on productivity to begin with. It is no solace for the unemployed that they only need to dedicate zero hours to their zero output; it should not comfort policymakers either.

Most facets of Atkinson’s national productivity strategy do not rely on regulatory efforts to drive labor costs higher; they aim to promote innovation that will cost-effectively boost productivity and therefore be adopted by choice. But the central question from the minimum-wage example remains: Whose productivity grows? To paraphrase Chief Justice John Marshall, we must never forget that it is people we are expounding. The productivity growth we target should be the increased productive capacity of the actual workers who populate the American economy.

Suppose, minimum wage aside, McDonald’s finds ways to reduce its costs by substituting capital (automated kiosks) for labor (cashiers). Is the productivity-growth story now one of unmitigated success? Much still depends on what happens to the newly unemployed cashier. Atkinson makes a compelling case that automation will not weaken the economy-wide demand for labor. Robots are not coming to take all the jobs — to the contrary, productivity growth typically begets job growth. But are those new jobs ones in which the former cashiers can now work at higher levels of productivity? If not, their productivity might decline.

The effect is more obvious when higher-productivity jobs are rendered obsolete. For instance, as some manufacturing task becomes automated, the (perhaps relatively few) remaining machine operators become more productive while the (perhaps more numerous) ex-workers may become less so if their only other job options are in personal service. Even with increases in both GDP and total employment, the losers can significantly outnumber the winners.

None of this suggests we should stifle innovation or constrain automation. Long-run economic gains demand technological progress. We should also be deeply skeptical of government’s ability to “manage” progress more effectively than the market can drive it. But if we do believe that a national productivity strategy can help steer the market toward a better outcome — toward greater production from actual workers — than it will achieve on its own, then that strategy must include a perspective on whose productivity will improve and how.

If the least productive workers can just disappear, policymakers achieve “success” by dismissing the challenge that deserves greatest attention. Instead, our conception of “productivity growth” must impose accountability for labor-market exits, recognize the value of keeping low-productivity workers connected to the job market, and have an explicit goal of ensuring that those workers are included in progress. This is doubly true because productivity measures do not fully capture the value of a job, which offers substantial non-economic benefits to many workers and may also be the best avenue for them to gain new skills and thereby increase their productivity over time. A high-productivity job requires a highly productive worker. A future filled with such jobs will materialize only if today’s less productive workers become able to do them.

This piece originally appeared at National Review Online 

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Oren Cass is a senior fellow at the Manhattan Institute. Follow him on Twitter here.

This piece originally appeared in National Review Online