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OM in the News: Weak Productivity Turns into a Problem of Global Proportions

May 26, 2015

productivityOutput per worker grew last year at its slowest rate since the millennium, with a slowdown evident in almost all regions, underscoring how the problem of lower productivity growth is now taking on global proportions,” reports The Financial Times (May 25, 2015). Globally, the rate of growth decelerated to 2.1% in 2014, compared with an annual average of 2.6% between 1999 and 2006.

As we write in Chapter 1, the problem of low global productivity as one of the greatest threats to improved living standards, in rich and poor countries alike. The fact that companies have become less efficient at converting labor, buildings and machines into goods and services is beginning to trouble policy makers around the world. Janet Yellen just cited weak US productivity as a cause of “the tepid pace of wage gains in recent years.”

Raising productivity is seen as one of the only ways to improve living standards, at a time when advanced and some emerging economies are seeing aging populations and a rapidly increasing retirement rate. Without stronger productivity growth, the world may have to get used to much lower rates of economic growth. Emerging markets are reaching the limits of easy growth based on catch-up technology while advanced economies are concentrating on services, which tend to have less scope for rapid efficiency gains.

New technology has centered on consumer products, which have made people better off and able to do more than in the past, but have not necessarily improved the quantity or efficiency of their work. There is little evidence the slowdown stems from lazy or inefficient employees. “Something is going wrong with the way firms are equipping their workforces to produce more,” says the head of the Conference Board.

Classroom discussion questions:

1. What is the definition of productivity?
2. What is the impact of technology on manufacturing productivity? On service productivity?

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