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The wisdom of Garett Jones
Workers mostly build organizational capital, not final output. This explains high productivity per 'worker' during recessions.
That is from Twitter, the link is here.
Posted by Tyler Cowen on November 5, 2009 at 08:40 PM in Economics | Permalink
Comments
"This explains high productivity per 'worker' during recessions."
You know what else improves productivity per worker during recessions?
Firing all the slackers, thereby motivating your remaining employees to work extra hard so they don't get the axe next.
Posted by: Russ R at Nov 5, 2009 10:25:10 PM
More true in service-industry dominated economies than others, probably.
Posted by: david at Nov 5, 2009 10:31:26 PM
Is there a contest for most profound or important thing said in the space of a tweet? That surely makes the short list.
Posted by: Jacob Wintersmith at Nov 5, 2009 10:55:04 PM
It is interesting to note that in countries where job loyalty is important, such as Korea, employers are more likely to cut wages rather than fire workers.
Posted by: Garrett Harmon at Nov 5, 2009 11:40:38 PM
If workers build "organizational capital", why not maximize the number of workers at all times? Or are the "excess" workers superfluous? Why hire them then during the upswing?
Posted by: JSK at Nov 6, 2009 12:28:06 AM
Firing all the slackers, thereby motivating your remaining employees to work extra hard so they don't get the axe next.
Except that when you start firing all the slackers, the competent and dedicated workers start their "leave this sinking ship before I am next" policy. They work just hard enough to keep their job, and jump ship as soon as the job market slightly improves.
Firing people is something you do to scare the workers at Taco Bell... or to make your company shares temporarily more valuable before you cash out. It isn't a long-term way to motivate skilled workers. If Stalin couldn't increase productivity by sending the worker and his family to die in the gulags, some clueless MBA isn't going to scare me into working harder by firing a few slackers.
Oh, and what is with those annoying pop-up ads that block half the comment box every time my mouse rolls over them?
Posted by: Vehical Driver at Nov 6, 2009 12:30:42 AM
sounds ok at first blush, but think about it.
why wouldn't reducing staff reduce organizational capital at least proportionally? do you expect, say, managers to be able line workers?
and just looking at the numbers, why wouldn't the productivity of managerial workers decrease strongly if they had fewer workers and processes to manage?
why would not the value of organizational capital be extremely compromised if the "recalculation" hypothesis were mostly true? if the economy is changing what it does, then the "brains" of the operation are going to be highly leveraged in their knowledge -- they are going to be deeply misallocating what few resources they have.
so, um, he didn't explain the whole world in a tweet.
Posted by: babar at Nov 6, 2009 1:37:37 AM
Roofing supply entrepreneur Ken Hendricks used to walk into stores and ask "If I paid you 50% more could you do his job too?" The first employees that said yes stayed and got a raise.
Posted by: srp at Nov 6, 2009 2:02:56 AM
SRP, that makes of course a good story to tell to Fortune magazine, for the rest it just means that working there is an eternal risk of losing your job on a whim. If I thought my boss did stuff like that, I would be reading the job ads right now.
Posted by: Zamfir at Nov 6, 2009 3:43:04 AM
JSK,
Go read Moneyball. For real.
Posted by: Andrew at Nov 6, 2009 4:22:09 AM
The problem is that this story coexists perfectly with Leftists cries of consolidation of power by the owners of capital. Delong, over at his blog, rescinds his mockery of such tales after looking at this quarter's productivity numbers. Like many disputes between the Left and the center-Right, the argument reduces to narration rather than fact.
Posted by: Habermas at Nov 6, 2009 5:32:19 AM
That's an attractive idea, but I don't think the data supports it. If you are looking at BLS data, productivity growth pretty much lagged since the economy started to sag after 2006 Q1, until the extraordinary growth of 2009 Q2 and Q3. But that's just catch-up. Overall, the rate of productivity growth since 2006 Q1 has been a little below that of say, 2000 Q1 to 2006 Q1. I think the same thing is true of past recessions -- no extraordinary productivity growth.
Posted by: TA at Nov 6, 2009 7:54:27 AM
If "organizational capital" means patents, product research, product design, product testing, which are counted as capital on the tax and accounting balance sheets, the data say it is far from "most". And if the "modern" idea (since 1981) is that isn't useful, that means capitalism is unproductive, especially in hard times when your products aren't compelling enough to be flying off the shelves.
We once called this "eating your seed corn." But this shows my age and my entering engineering in the late 60s and 70s when building capital was the national mission. I see the national mission to be consuming capital since about 1981, because capitalism requires too much sacrifice.
Posted by: mulp at Nov 6, 2009 11:22:08 AM
My lay-person's understanding is that any productivity gains occurring right now are mostly due to unpaid overtime, leading to fewer peolpe doing more work for less money (or the same amount of work for less money).
Posted by: Tony at Nov 6, 2009 12:46:49 PM
Um, the very simple explanation is that less productive people get laid off and lower return projects get canceled. You cut the fat first. It's called creative destruction, look it up. This is not that complicated an issue.
Posted by: harlan at Nov 6, 2009 12:59:24 PM
@mulp:
Eating your seed corn is the national pastime. This is why the tech companies fire legions of engineers to try to increase profits.
Posted by: Doc Merlin at Nov 6, 2009 5:33:21 PM
@Andrew: Is it your mission to be portray the stereotypical young American male? Not all phenomena are adequately captured by sports metaphores.
Um, the very simple explanation is that less productive people get laid off and lower return projects get canceled. You cut the fat first. It's called creative destruction,
Isnt this "diminishing marginal returns"?
Posted by: JSK at Nov 7, 2009 2:55:55 PM
