America's Economic Problem? Workers Aren't Producing As Much As In Past
August 24, 16(IDEX Online News) – The American unemployment numbers may be encouragingly trending downwards, but employees aren't working hard enough – even if they feel that they are.
Whatever the reason – and some have suggested that workers are spending too much time tweeting and messaging their friends –, it's not helping the economy.
"What do we produce? We just go around and text each other," Carl Icahn, a prominent hedge fund manager and supporter of Donald Trump, told CNN.
Output per American worker is at its lowest level since the 1970s, according to government data.
Throughout the 1990s, worker productivity shot up by 2.2% a year, on average. In the early 2000s, it went up a brisk 2.6% a year. Since the Great Recession, it's been crawling along at barely more than 1% a year, on average.
Now it's getting worse. The latest reading came in at negative 0.5% for the period between April and June, according to a CNN report.
The U.S. is in an alarming productivity slump, and it's not clear how to fix it. The two most popular solutions are: Get businesses to invest in better equipment or revise the productivity statistics to take into account the benefits of the smartphone economy, the report says.
"The most important issue is a lack of investment spending," says David Kelly, chief global strategist at JPMorgan. Companies are sitting on near record levels of cash. In a healthy economy, businesses typically spend money on new factories, tools and research. That's not happening. Businesses are either hording cash in their bank accounts or using it to buy back stock. Those activities do little to help the economy.
"You have to give each more worker tools" to be productive, says Kelly. Productivity boomed in the 1990s and early 2000s because businesses were investing in technology to improve factories and processes. The same worker could suddenly make a lot more gadgets or serve more people.
Meanwhile, some blame the uncertainty ahead of the U.S. presidential election in November for holding back on spending. Other experts point to alleged over-regulation and the costs involved.
Then there's the Federal Reserve. America's central bank has kept interest rates extremely low, barely above 0%, since the crisis in 2008. In theory, that should have made businesses want to borrow money and go spend it on new projects. But it may have backfired. Stocks and bonds have surged since the Fed cut rates to historic lows. Economists believe that companies preferred to put money in the markets than factories.
Then again, it might be faulty government measurement of productivity and the fact that measuring it in the service sector rather than manufacturing is harder to do.