tag:blogger.com,1999:blog-8764541874043694159.post4440909147011485218..comments2024-03-29T10:48:38.142+00:00Comments on Coppola Comment: Why targeting productivity is a bad ideaFrances Coppolahttp://www.blogger.com/profile/09399390283774592713noreply@blogger.comBlogger10125tag:blogger.com,1999:blog-8764541874043694159.post-73311875643090894912019-05-20T08:08:05.392+01:002019-05-20T08:08:05.392+01:00/2.....
Now, to your point that the size of the l.../2.....<br /><br />Now, to your point that the size of the labour force does not affect productivity GROWTH. Up to a point this is true: adding extra workers shouldn't change the rate of output of each worker. However, the management overhead becomes larger as the size of the workforce increases, which can slow the rate of productivity growth. And it is possible to reach a point where increasing the size of the labour force actually reduces productivity. As the old adage says: "Too many cooks spoil the broth".<br /><br />Although the absolute size of the population doesn't necessarily affect productivity growth, its composition does. The re-entry of women to the workforce not only changed the size of the working population, it also changed its composition. As a direct result of women entering the workforce, services such as child care and domestic cleaning started to make a significant contribution to GDP. Furthermore, other compositional effects (eg rising proportion of elderly) result in rising demand for services such as healthcare and social care. Much of the immigration since WWII has been driven by growing demand for labour in service industries. Compositional effects matter. <br /><br />I also said that in a services-dominated economy which has nearly full employment of both men and women, productivity growth might be hard to come by. This is because of the nature of services, as I explained in the post. You dismiss the "gig" economy and low-wage service sectors as "things you don't support". This will not do, I'm afraid. These sectors rely on large numbers of cheap labourers, and they are an increasingly important part of GDP. And you rightly point out that they tend to reduce productivity. Productivity growth in high-tech services would have to be absolutely astronomical to offset the drag that these labour-intensive services exert on overall productivity growth. I think you are expecting far too much. <br /><br />The reason I mentioned nearly full employment of women is that historically, increasing output in service industries by raising the technical skills required to do them has almost always disproportionately driven out women (nursing is an honourable exception). You need a strategy to raise productivity in labour-intensive low-wage sectors without adverse consequences for the employment of women and minorities. It is very sad that a report which aims to solve the UK's productivity problem has no answer to the proliferation of low-skill, low-wage, low-productivity industries in respond to rising demand for cheap personal services, which in my view is a large part of the productivity puzzle. <br /><br />In summary, I have not confused GDP with GDP per capita, and nor have I confused labour productivity with workforce size. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-72906416717133908962019-05-20T08:01:41.795+01:002019-05-20T08:01:41.795+01:00I shall respond in detail to this long series of c...I shall respond in detail to this long series of comments in a second blogpost. However, <br />I must here rebut your accusation that I am "confused" about the nature of productivity. I assure you I am not. <br /><br />Firstly, let me correct your mathematics. I refer you to the way in which labour productivity is generally calculated. For the whole economy, labour productivity is GDP/total hours worked. This is not the same as GDP per capita, which is GDP/total population. <br /><br />If labour productivity is calculated as GDP/total hours worked, then it must depend on the size of the population, since there are only a limited number of hours in a working day. Obviously "population" includes inactive people (children, old, ill), but unless the proportion of inactive is very high, a large population will work more hours in total than a small one. Unless the GDP of the larger population is proportionately larger than that of the small population, labour productivity must be lower. <br /><br />For example, imagine we have a population of 100,000 which has 20% inactive, and another population of 50,000. Both populations have 20% inactive, and the working proportion of both populations does a standard 40-hour working week for 50 weeks of the year (this isn't terribly realistic but it keeps the numbers simple). The first group has total hours worked per annum 80,000*40*50 = 160,000,000. The second group has 40,000*40*50 = 80,000. Let's imagine both groups have output per annum of £5bn. Labour productivity of the first group is 5,000,000,000/160,000,000 = £31.25 per hour. Labour productivity of the second group is 5,000,000,000/80,000 = £62.5 per hour. The labour productivity of the smaller group is therefore twice that of the larger group. GDP per capita is also twice as much, but that is irrelevant as far as productivity is concerned. <br /><br />/1....Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-68488726460232571262019-05-17T15:16:49.878+01:002019-05-17T15:16:49.878+01:005. “There was barely a mention of service industri...5. “There was barely a mention of service industries in the entire report.”<br /><br />We refer you to the above. We spent the bulk of our time discussing technology and its impact on services. In particular we gave emphasis to professional, scientific & technical services throughout, as well as many other service sectors. <br /><br />6. “Realistically, productivity in service industries is not going to rise by anything like 3%, not least because the quality cuts needed to achieve it would be political dynamite.” <br /><br />You get productivity improvements through quality enhancements, not cuts. If you improve the quality of a service, and pay the same in nominal terms, real output increases. This is a productivity improvement. Of course, there are issues in measuring quality, which is touched on in the paper, but for even small businesses the advances in the likes of Xero accounting services, the apps on phones that speed up administrative tasks, google for research, public and private sector provision of information for free - cloud storage with high security that even small businesses can afford, the use of for example Microsoft 365 for all your applications – which are automatically updated and managed at such low cost. This has allowed small businesses in any sector of the economy to be more efficient and at significantly lower costs. It is not about cost cutting - its about enhancing work - making work more meaningful and improving your services or manufactures. <br /><br />7. “And in many service industries, raising productivity has unfortunate welfare consequences.” <br /><br />The gig economy and low pay are not a feature of raising productivity – it is a business model of some companies we do not support. In fact ‘gig’ economy companies tend to reduce productivity. <br />The promotion of low wage jobs does not support productivity gains. Low wages are in low output sectors of the economy. <br /><br />8. “Semiconductors alone are to deliver a 3% increase in productivity, apparently. That is one heck of an enormous responsibility for the semiconductor industry.”<br /><br />Semi-conductors are very important, but the industrial strategy proposals and our report in general gave a much wider view of how we could see sustainable and productivity growth in the economy. The industrial strategy would be a key driver in the support of productivity growth as we transform infrastructure and support public and private sector sustainability and decarbonisation – often driven by technological advances. <br /><br />You miss the incredible flow-on effects of semiconductors. Our reason for focussing on semiconductors is because they are a general-purpose technology “GPT”. Another example of a GPT is electricity.<br /><br />From 1974 until 2013, computing (i.e. semiconductors) contributed around 1/3 of annual labour productivity growth (See: “Is the Information Technology Revolution Over?” Byrne, Oliner, and Sichel (2013)). In fact they view the advances in semi-conductors as likely to mean that the pace of labour productivity growth will exceed the long-run average. Since their paper was written, we are seeing that semi-conductor advances have again speed up, enabling another technology, AI to also be a GPT. The combination is hugely advantageous - a Labour government would want ensure that the benefits of such transformations are more widely shared.<br />Peter Rice, Clearpoint Advisorsnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-57066594757516684192019-05-17T15:15:54.923+01:002019-05-17T15:15:54.923+01:004. “It's an absolutely whopping hike, particul...4. “It's an absolutely whopping hike, particularly when you take into account the fact that in the 1950s and 60s, the labour force was much smaller due to lower immigration and female participation, and the UK was rebuilding after WWII. In a mature economy which is 80% services and which has nearly full employment of both men and women, that 3% target looks well-nigh impossible.”<br /><br />Obviously, the size of the labour force has nothing to do with productivity growth or GDP per capita. And it does not matter whether you are at full employment. The question about shift to service industries is more interesting. In fact the gains from technology are significant. We spent all of chapter 6 on this very important point. <br />As was stated in the report: <br /><br />“In truth, quantum computers, robotics, 5G and blockchain will all to varying degrees offer the potential for significant productivity gains. Recent developments in the semiconductor industry suggest that the pace of innovation is, if anything, likely to accelerate too. <br />The challenge for policymakers is clear. Better data will be needed to ensure that investment, both public and private, produces the best returns. The fourth industrial revolution is not being measured accurately.”<br /><br />We go on the explain what is happening with the technology revolution. It is more than just efficiency gains which are themselves significant. It is also about new services that can be offered because of for example 5G. these very services that are productivity enhancing are also offering ways of doing business that are sustainable. <br />With the internet of things “IoT” and 5G, we can in real-time monitor pollution, business waste, power management, home heating efficiency, control traffic flows – that data will inform government and private sector about where to put their efforts to aid in decarbonisation and business sustainability. In the energy sector alone AI is allowing huge efficiency gains in how it manages systems for energy use. We are talking about significant factor gains for saving power. The plans we outlined in Chapter 5 outline how an industrial strategy would support productivity, sustainability and decarbonisation. For example in the UK, enhancing energy systems will drive forward energy efficiency and economic growth. We can have decarbonisation and growth.<br />Peter Rice, Clearpoint Advisorsnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-62212978088386882492019-05-17T15:14:57.350+01:002019-05-17T15:14:57.350+01:00hence our focus on an industrial strategy for the ...hence our focus on an industrial strategy for the UK.<br /><br />3. "If it targeted labour productivity, there would be implications for environmental sustainability. In the absence of measures to improve efficiency of resource usage, raising GDP or GVA increases the rate at which finite resources are used. It is hard to see how this is remotely compatible with achieving carbon neutrality or sustainable use of resources."<br /><br />We clearly disagree with your analysis. <br />a) increasingly services and the intangible economy is what drives the economy. We discussed this at length at chapter 6 in the report and highlight the extent of the services economy value add in Chapters 7 and 9. We see an increase in the ability to combat climate change issues with advances in technologies to support decarbonisation.<br />b) cost of renewable energy falling sharply. There is an inflection point at which is becomes more profitable for companies to invest in and use renewable energy sources. <br />You can have as much productivity growth (remember, that's got nothing to do with the size of the workforce, as it's a per hour worked measure) as you want, and still be environmentally sustainable. The two things are not incompatible.<br /><br />In our view this then leads on to the other confusion below, where the difference between GDP per capita and GDP are confused:<br />Peter Rice, Clearpoint Advisorsnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-39522575183360082662019-05-17T15:11:20.172+01:002019-05-17T15:11:20.172+01:00We wanted to follow up on a few inaccuracies in th...We wanted to follow up on a few inaccuracies in the blog. It is a feature of a long report that readers miss some of the details. To ensure that there is an accurate recollection of the report we set out the following points and clarifications. We are setting out the response in a set of comments due to the minimum character count for each comment.<br /><br />Statements from the blog are numbered with our comments following:<br /> <br />1. "That said, the report doesn't actually define what it means by "productivity," which makes it somewhat difficult to determine whether the target is at all realistic." <br /><br />Perhaps we should have been clearer. The standard definition of productivity is output per hour worked. This is labour productivity. In footnote 1, we compare our target with the labour productivity growth rate since 1950s. So it is a clear assumption that the ‘productivity target’ would be labour productivity, given this is what we are using for the purpose of our argument. No mention is made elsewhere in the report of any other definition of productivity.<br />2. "The fact that the rate of return on capital has been falling for the best part of forty years could suggest that capital is not being deployed efficiently."<br /><br />For the record, rate of return on capital has not been significantly falling. See: <br />https://www.ons.gov.uk/economy/nationalaccounts/uksectoraccounts/bulletins/profitabilityofukcompanies/octobertodecember2018<br />The service sector has been seeing increases in rates of return. Manufacturing has had a reduction – Globally rates of return on capital have not been falling.<br />(See also: “Why have interest rates fallen far below the return on capital” Marx, Mojon and Velde, January 2018, Federal Reserve Bank of Chicago)<br /><br />Other than a small dip post financial crisis, real rates of return have increased in the US. To that extent we agree that capital in the UK by comparison to the US is not being efficiently deployed hence our focus on an industrial strategy for the UK.<br />Peter Rice, Clearpoint Advisorsnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-27355168440971300622019-05-15T15:24:05.613+01:002019-05-15T15:24:05.613+01:00Yes, I remember that. I really should pick it apar...Yes, I remember that. I really should pick it apart. It doesn't originate with Grace - it has been around for much longer than that. Apart from being pretty impractical, it is also enormously regressive. I pointed this out to her but she didn't seem all that bothered. Perhaps she is comfortable with telling the plebs that they shouldn't aspire to own their own homes. I am not. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-35344903085564530972019-05-15T12:31:25.400+01:002019-05-15T12:31:25.400+01:00This is outsourcing responsibility to the Bank tha...This is outsourcing responsibility to the Bank that should be in the hands of the government, who can then pass the buck when the Bank ends up missing an impossible target. <br /><br />If I were being cynical (and conspiracist) I would interpret this as an attempt by the Corbynite left to undermine the case for independent central banks. Instead, it is probably just a terrible idea that has caught wind amongst the circlejerk of "progressives" that dominate the left today. I don't know what's worse... <br /><br />Frances - Grace Blakely recently wrote about a HPI target for the FPC. The idea was hilariously bad but I would be interested to hear your view. <br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-59975496557076364892019-05-15T05:25:16.204+01:002019-05-15T05:25:16.204+01:00Workshop should be rephrased - "New Obligatio...Workshop should be rephrased - "New Obligations for the Bank of England".<br /><br />Sounds like outsourcing politicians duty to serve the people. But beware that EU does the same. An entity not fast enough accessible through politicians and therefore Brexit-Worthy. Finally, you can blame the central bank for even more. Outsourcing is awesome neglect play.<br /><br />I do think helicopter money isn't in their toolkit, because of media discouragement. Some economist blame central banks and fear of ZIRP that there isn't enough room or toolkits if a new recession hits to lower rates. Switzerland has negative rates. Japan has low rate for decades. But beware of helicopter money or negative rates.<br /><br />Friedman and one of his simplified thoughts that you can solve everything with the interest rate isn't really helpful. He even talked about helicopter money and maybe even more toolkits for a central bank. Biased economists, journalist accentuate only their favored friedman quotes.Alexhttps://www.blogger.com/profile/03062444630433735504noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-90823462721497251432019-05-13T18:28:21.257+01:002019-05-13T18:28:21.257+01:00This comment has been removed by the author.jerred seiysllhttps://www.blogger.com/profile/17375770046164311780noreply@blogger.com