Uncork the Champagne
This really irks me. It’s bad enough that most of the news we get is “bad news” (”if it’s bleeding, it’s leading…”), but we also have to interpret the news accurately because the media won’t do it.
Did you see this headline: “Labor Department Says Productivity Surges as Labor Pressures Ease”
If that is all you see, it sounds like it’s time to party. Productivity Surges. That sounds like good news, doesn’t it? Labor Pressures Ease. That too sounds good.
At least someone is trying to be positive – too bad they’re doing it in a way that is misleading. So what’s the real story?
Don’t Party Just Yet
What is this productivity anyway that is ’surging’? Productivity is defined as the amount of output per hour of work. So this says Americans produced more “stuff” for every hour they worked. That still sounds like it’s good news given the challenging economics we’re in. People producing more goods and services for their time would make you think they are more focused on their work, putting in more effort, and that there must be some demand for all this ‘output.’ Excellent!
Wait, there are two parts to the formula: (1) output per (2) hour of work. Oh yeah, remember all those layoffs? Remember the unemployment roll now being the highest it’s been since records have been kept beginning in 1967? Hmm, maybe not such a good deal after all…
If I normally produce 10 units of widgets in 1 hour, that is a ratio of 10:1, or you could call it a productivity rate of 10. If I only produce 8 units in an hour it’s 8:1 or a rate of 8 – and an obvious decrease. If I produce 12, it’s 12:1 or a rate of 12 – and an increase, of course. But what happens if I only work 45 minutes?
If I’m still producing widgets at a rate of 10:1, I’ll get 7.5 widgets completed. Hmm, can’t have half a widget so I need to work faster and get 8, or stop at my 7th. If I do 8 in 45 minutes, I now have a productivity rate of 10.7 and my productivity has gone up. BUT production is down!
(Change out the 1 person working only ¾ an hour to a decrease in staff of 25% and you have the same impact).
Which is More Important – Productivity or Production?
Why does this matter? Read this statement:
“Productivity, which is the amount of output per hour of work, was able to show a robust increase because the number of hours worked during the period plunged at a faster rate than output declined. That reflected the massive wave of layoffs that occurred during the quarter.” (my emphasis)
If all we’re watching is productivity, then let’s cut another 500,000 jobs, and productivity will really soar. (Although we might not produce much). Don’t misunderstand, I’m not saying your business should be producing above demand or forecast. However, I do think we need to see the truth in the news.
So here’s the real headline: “Production Drops as Hours Worked Plunges”
As a business owner, you need to see the real picture so you can plan for your business. Why is productivity “up”? Why are labor costs “easing”? What does it mean for your business and your workforce when our economy’s production is declining and people (who are the ultimate consumers of all goods and services) are working fewer hours?
Where’s the “Good” News?
Don’t get me wrong; I’m all for good headlines and good news – I don’t think we get enough of it: News that is positive and valuable (i.e., good) and news that is solid, fact-based, and presented in a way that helps you run your business (i.e., good).
Workforce Expertise:
Track your own businesses productivity – whether by hours worked or other appropriate input. Then determine where your productivity is declining, or increasing, why, and what to do about it.
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