Clearly, the economy now is at a major turning point; what economists call “an inflection stage”.
The driving force for our economy in recent years has been the improvement in productivity. That has produced advances in corporate profits.
Many seem convinced that these trends will continue for the foreseeable future. This is a serious misconception, soon to be reflected in the overall economy.
The GNP number no longer will show that we are in a sustained recovery, and gains in employment, therefore, will be disappointing.
It should be noted that corporate profits have improved, not so much because of volume gains, but rather as a result of gains in productivity.
There has been a remarkable gain in productivity – that is output per hour – and that has boosted company earnings. People fail to question how long this can continue. After all, there have been periods when productivity slumped, but an optimist now is confident that we will see no time limit. This is a mistake.
Hence, is the present belief in further gains in productivity and corporate profitability justified? Given past history, unfortunately, we no longer can rely on additional advances in these key factors.
Business was slow to react to the economic recession and suffered accordingly, but this time it acted differently. Labour efficiency began climbing in the second half of last year. That has been attributed to business enterprise and the willingness of labour, especially union members, to be more flexible.
Any objective economist now will recognize that productivity growth is on the verge of stalling. Workers can only be pushed for a short period of time. Overworked staff are starting to complain, and according to The Wall Street Journal, job dissatisfaction is at record levels.
Businesses have been squeezing workers to see how much can be done with the cost structure. Unless the economy experiences a real resurgence and workers’ morale rebounds, productivity is certain to deteriorate.
Hitherto workers have been worried about losing their jobs, and therefore have been inclined to take on new tasks or work extra hours. Much to everyone’s surprise, unionized workers have shown great flexibility. There has been less “clock watching” as some do not leave immediately after their shift ends.
In addition, companies have shown great ingenuity, purchasing more efficient equipment and accommodating their employees as much as possible.
However, there is a limit to all these moves, so further gains in productivity are very unlikely, distressing omens for our economy.