Productivity - the downside

Men at Overwork:
The good news is we're more productive. The bad news? They don't need as many of us, By Brad Stone, NEWSWEEK, August 11 2003

Aug. issue 11 IBM's year-old, $2.5 billion computer-chip plant in East Fishkill, N.Y., is a manufacturing marvel. Three hundred robotic tools, six miles of networking cable and more computing power than NASA uses to launch the space shuttle all work together to produce tens of millions of chips year IBM -- each with circuitry 800 times thinner than a human hair.

NOT THAT YOU'LL find much human hair around the plant. Other chip plants need about 400 employees at all times to operate the complex machinery. But today at East Fishkill, 100 engineers per shift oversee a totally automated production line, solving problems and generally keeping their distance from the real work. Last winter, when a fierce snowstorm sent everyone home early, the machines t even notice and hummed along overnight without a The productivity increases for IBM are says Perry Hartswick, the senior program manager at the plant. Productivity improvements like those at IBM are a boon in a healthy economy, helping to make American business more competitive abroad and keeping a lid on inflation as employees work harder to meet strong demand for their products. But economists have a knack for spotting the downside of any trend (s called the dismal science for a reason), and sure enough, s soaring productivity is having a harmful side effect: s holding back job growth in an economy s finally growing again, albeit slowly. Last Thursday, the Commerce Department reported that GDP grew at a respectable annual rate of 2.4 percent, fueled in large part by spending for the war in Iraq. But tell that to the 9.1 million Americans who are out of work. They probably paid more attention to s new stats: unemployment was hovering at an uncomfortably high 6.2 percent in July, and 44,000 additional jobs were axed from payrolls, marking the sixth month in a row the economy has lost jobs.

MORE WITH LESS Thanks in part to the impact of new technology on the workplace, companies have been able to boost production to meet demandFridaythatittodayitamazing growingwithout hiring. An intense focus on keeping costs down, and the continued migration of jobs overseas, is also keeping a lid on new Firms are pushing productivity as high as they can right says Barry Bluestone, an economist at Northeastern They are trying to do more with Economists t have recent precedents to help explain the anomaly of a jobless recovery. Payrolls officially started to expand 15 months after the 1990-91 recession. The last recession technically ended in November 2001. Today, 20 months later, someone forgot to throw the party. Weekly claims for unemployment benefits are still hovering around 400,000, and Americans are getting impatient. On a tour through the Midwest last week, members of s economic team were greeted by picketers decrying 2.6 million jobs lost since February 2001. "This is the weakest national recovery since the postwar", says California economist Steven Levy. One culprit is all that seemingly profligate spending on high-tech during 90s boom. More than three years after the bust, s continuing to generate a productivity payoff inside companies. At Silicon Valley giant Cisco, wireless networks, online sales-tracking tools and portable, Internet-based telephones are all helping employees do more work in less time. With $1.9 billion in productivity savings last year, Cisco can boast to Wall Street of increasing profits without adding employees.

WORKING SMARTER Technology t the whole story behind s high productivity rate; some companies are simply working smarter. The big three automakers have drawn productivity lessons from manufacturing philosophies of their Japanese competitors. At GM, a worker installing taillamps for three different models works from supply boxes with bar-code scanners that monitor each part. If the worker tries to install the wrong part, the supply box automatically stops the assembly line. s not sexy, but the mechanism, and others like it, cut down on mistakes. As a result of this and other changes, GM enjoyed a 7.4 percent boost in productivity last year, according to Harbour and Associates; it has also slimmed its U.S. work force by 15 percent over the past four years, while the number of cars it makes remained steady. s not just manufacturers posting gains. Even industries like entertainment and higher education, once thought to be largely immune to productivity improvements, have been revolutionized by digital media, online research tools, cell phones and e-mail. And all kinds of companies are asking employees to work harder for the same amount of money. For the third year in a row, annual pay increases have been less than 4 percent, according to a Mercer Human Resource Consulting report released last week.

Job hunters will be dismayed by another way firms are cutting costs: sending jobs overseas. Over the last three years, American manufacturers have shipped 2.6 million jobs to low-wage countries like China. What is more startling, economists say, is the flood of jobsItItAmericaisn white-collarlike computer technicians and reps customer-serviceto countries with well-educated work forces, such as India. San Francisco-based airport retailer DFS, for example, slashed its tech work force and contracted to use tech workers in India. DFS dubbed the move "Project Chrysalis" and reported 35 percent savings on its tech budget as a result. Forrester Research expects 3.3 million service jobs to move offshore within 15 years. There is of course a simple solution to thisChrysalis alla hotter economy, with stronger demand that would force companies to hire workers. But the seven-point decline in July of the Consumer Confidence Index t offer much near-term hope. Some economists also worry that s deep tax cuts a very expensive way of getting an amount of stimulus that is too says Janet Yellen, a professor at the Haas School of Business who also chaired Clinton's Council of Economic Advisors. The Bush administration responds by asking Americans to wait until the full effect of the cuts are felt and the economy kicks into a high-gear growth rate of 3 to 4 percent. For the millions of Americans who are out of work, that day can't come soon enough.

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