Thursday, July 02, 2015

Productivity and the changing world of work

Today's short post is really an aide memoir to myself, just jottings.

In a comment from kvd on  The Greek crisis - a high stakes game marked by blindness, inexperience and rigidity, kvd provided a link to this Bloomberg piece. In commentary in the video embedded in the piece, there is a reference to games theory. I had actually forgotten that Greek Finance Minister Yanis Varoufakis was an expert in this area. Now I am wondering how this relates to the strategy being followed by the current Greek Government.

A piece in the Canberra Times by Noel Towell ('War for people' looms in the public service) looks at the aging of the Commonwealth Public Service. I have commented previously on the same pattern in the NSW Public Service. In another Canberra Times piece, Tony Featherstone asks Has outsourcing gone too far? Some of his examples struck a real personal chord. 

Over at his place, Winton Bates and I have been carrying out a conversation on productivity triggered by "Will paying for internet content raise productivity growth?". Winton has been very patient with me! My interest here lay in what I perceived to be a gap between the way productivity is measured and what I saw at firm and industry level.

All these things are loosely connected in my mind. Yanis Varoufakis appears to be applying, or attempting to apply, a highly structured set of economic theories on decision making to a very messy political process. Games theory is useful, but has very little to do (at least in my mind) with longer term decision processes. Productivity measurement and the development and application of policy prescriptions based on that measurement is likely to be misleading and even dangerous if the structures on which that measurement is based do not adequately reflect changing realities, including the existence of things that cannot be directly measured. 

Central to my thinking on productivity have been rolling changes in the way we work. This is where the Canberra Times pieces come in. Both relate to organisation efficiency in the short and long term. My thesis, if I can call it that, is that the changing way we work is not adequately reflected in current discussions on productivity nor in the policy prescriptions based upon conventional productivity measurements. 

In the workplace, we combine people with equipment to carry out functions. In conventional productivity terms, that is called labour and capital. However, the way we work actually depends upon the combination of structure (the way work is organised) and know-how (knowledge of how we do things), These change over time. To my mind, and I accept that I am speaking from an inexpert viewpoint, neither is adequately accommodated in current productivity theory. 

Putting it in another way, if in multi-factor productivity measurement, we attribute change to labour and capital as defined with all other factors appearing in the residual, then the measurement of and analysis of the residual becomes very important. 

When I did my Master's qualifying thesis all those years ago on the economics of education, the unexpected size of the residual over longish periods was attributed to improved education, human capital formation embodied in people. That may have been true then when mass education was still spreading. In Western countries I doubt that it's still true.

The changing world of work demands always that we learn new things. We do that mainly on the job. To my mind, changes now in formal education have very few positive productivity effects. Indeed, the opposite may be true. Rather, and this may well have been true in the past, it's the changing structure of work in combination with know-how that really determines the residual. 

This may sound very dry, but as a partial indicator of what I'm talking about look at the consistent complaints across organisations, private and public, about the loss of corporate knowledge, of the know-how on how things are done or indeed might be done better, because of constant restructuring. Change is inevitable, but the pattern of complaints suggests that past a certain point change becomes a drag on performance and hence on productivity. 

 This is just one example. There are many others. In analytical terms, it becomes hard to disentangle the various effects because they feed on each other. Still, I think that we need to make the effort  .     



Anonymous said...

Varoufakis is an interesting guy. You might also like to browse his 'blog' for his wider thoughts:

- worth a read particularly for his latest thoughts.


Jim Belshaw said...

Thanks, kvd. I will have a look.

2 tanners said...

You should also google Eric Abetz's definition of productivity. Shorter Abetz: 'Productivity improvement is when we have fewer workers.' Full stop.

Jim Belshaw said...

Or when those workers work longer hours -

Thanks, 2T. I had forgotten that example. For the benefit of readers who have no idea what we are talking about, under current rules, any Commonwealth Public Service pay increases must be offset by productivity gains. But no one appears to have any real idea how to measure that other than by cost reduction or, apparently, increased hours.

Winton Bates said...

Jim: The extent to which knowledge that workers acquire on the job is reflected in MFP growth would depend on the remuneration system. My impression is that this knowledge does tend to be undervalued. So the loss of people with a lot of corporate knowledge could be expected to be reflected in lower productivity, and lower profit.
Another side of the equation is the cohesiveness of teams. It requires artful management to make good use of the people with so much corporate history that they can remember that many of the good ideas of their managers have been tried before and didn't work.

2 tanners said...


I'm not sure if I've ever responded directly to your comments, but the second paragraph had me smiling, laughing and nearly crying all at the same time.

I'm sure you meant it anyway, but just to make it clear, a manager blessed with a corporate memory team has to manage upwardly as well. The team (and I use the word loosely) will often value its knowledge appropriately, perhaps even above its market worth. The manager needs to manage each individual - teamwork in this case is a bonus, not a given.

I've been in this situation, and as a new manager, failed miserably. I've also been in the situation of constructing a team from newbies and 'seconds' only, and really succeeded. It's a complex topic and my only real contribution is to say that the manager is a key part of the equation; it's not ALL about the worker.

On the first para, all I can say is that as a highly paid officer with decades of experience, the amount I was offered to leave and take my knowledge elsewhere was so much that I could not refuse. The calculations varied but I was being offered somewhere between a loss of $12 to a gain of $57 net per week to reduce my working hours from 45-50 hours per week to precisely zero.

2 tanners said...

You can put too much effort into analysing things.

For instance, if you are making a green pawpaw (papaya) salad, you do need to get a green, not ripe pawpaw. Of course, once you make your actual desire known to the greengrocer, you'll get what you want and a discount. You have to choose between two fresh limes or pure lime juice. The freshness of the real limes comes through, but you have to be able to get them. Cracked fresh black pepper is a gimme. Chili is the tricky part. You need fresh chili fruit, no question. Chili has both heat and flavour, and here is where your choice is personal. You can move down as far as red capsicum and up to scotch bonnets which are red fire disguised as a vegetable. Never touch powdered or dried stuff - no flavour.

Shred the pawpaw, squeeze or pour the lime, sprinkle the pepper and finely dice and add the chili. Also add crushed garlic if you will and finely chop and add coriander. Also finely chop parsley and keep some of the chili, coriander, garlic, pepper and lime in reserve.

At this point you have to taste, balance, and taste again until it's right. And when it is, it's marvellous.

Like successful management.

Winton Bates said...

2T: I meant it as you understood it. And the art of management does seem in retrospect to have been a bit like making a green paw paw salad. I never felt as though I had mastered the art, but the outcomes would probably have been worse if I had considered myself to be a potential master chef.

Anonymous said...

Jim needs a new keyword for recipes. Otherwise all this good stuff will be lost :)


Jim Belshaw said...

I do don't I, kvd! Will come back with more comments later today.

Jim Belshaw said...

Hi all. Existing knowledge, the way we do things around here, can be both a good and bad thing. It aids efficiency and incremental improvement, but can be a barrier to desired change as well.

When we look at national productivity measures,a key feature is the small percentage involved. Leaving aside measurement problems and keeping things very simple, if every organisation could improve annual productivity by 2% per annum, national productivity would grow by 2%.

I recognise that this is a simplistic statement, but my point is that from a national viewpoint, productivity change is small change at the margin.

Significant organisation restructuring involves direct and indirect costs that can be considerable. The indirect costs include the immediate loss of incremental improvements. The hope is that those costs will be offset by subsequent gains. A period of pain is to be followed by one of gain.

However, problems arise. The restructuring itself may be badly designed, incapable of delivering the expected gains. The gains themselves may be wrongly specified, unsustainable, delivering an apparent immediate yield with later costs. It is not unusual to have rolling restructuring, essentially extending the period of pain before any real gains can flow.

We have been in a period of organisational instability at private and public levels. On just the maths of it, you would expect that to lead to lower national productivity now. Whether that will be followed by subsequent productivity increases is open to question.

A lot of my work has been concerned with or affected by these change processes. I tend to see things at micro level and then attempt to aggregate and test. That leads me to ask somewhat different questions.

2 tanners said...

I disapprove of '...but a man in the pub said' argumentation, except of course when I'm the man in the pub. So here goes.

I agree with what you say at the theoretical level, but just about all my personal experience seems to contradict it. I left Canberra for a period of only three and a half years and the place changed out of sight. Much of it was money earning, retail development.

I left my present place of residence for five years, and the changes were stunning, at least in the capital city. Mortality rates down, crime rates down, nutrition up - there really wasn't a marker that had even lagged. Better roads, more schools, better hospitals. All from an admittedly low base.

But my friends who had remained here for the whole period can only see incremental change, if any.I'm coming to believe that accurate assessment requires both close involvement and distance.

You get close up to make the pawpaw salad, but then must stand back to test and tweak it.

My point? I think, man at the pub style, that there is a lot of productivity growth going on unrecognised. IIRC, wages and salaries have been a declining part of business expenses for decades, and continue to decline (contra various business groups' claims about ruinously high wages).

The generator has cut out 3 times while writing this so i'll hurriedly post it and see if I can find that reference before losing the router again.

Unknown said...

The stats appear to say I'm wrong. And right.

I understand that our peak year of productivity was 1974, a year of strikes, a double dissolution and political turmoil. Productivity GROWTH has on average been negative according to the ABS for the last 10 years.

However, I also have a chart from Trading Economics at indicating a steady growth in productivity from 1987.

Maybe I'll go down to the pub tonight and see if I can pull a consensus together.

Winton Bates said...

Those little increments in productivity do tend to add up over time. Sometimes it is good to take a look at something like this:

Jim Belshaw said...

Hi 2t. I agree that the productivity stats do not accurately measure productivity changes. That was part of my earlier argument. I find the variations in the stats a tad confusing. I would agree, too, in combining standing back and looking close.

I'm not sure what conclusions one can draw from the Canberra case study. The ACT has the highest average per capita incomes in Australia. Coming back to Canberra, one thing I have noticed is the increase in disposable income. However, I am not sure that there is any nexus between this and productivity change!

Winton, some aspects of those slides strikes me as misleading, but the overall point about the effects of small increments is important. Mind you, I haven't seen analysis of productivity change during the industrial revolution. I'm sure that it exists. I would have thought that it was more than incremental!

Winton Bates said...

Jim, I wrote something about productivity change during the industrial revolution. The numbers do not look particularly high, even in the cotton industry. See:

Jim Belshaw said...

Thanks, Winton, I had forgotten that post. Blush! More input.

Winton Bates said...

Never mind, Jim.
You sent me looking for more recent discussion of productivity growth during the industrial revolution. This paper by Nicholas Crafts is interesting:

The story remains much the same. Productivity growth is fairly slow for countries that are close to the technological frontier. Much faster productivity growth is possible in developing countries during their catchup phase.

Jim Belshaw said...

Thanks, Winton. The industrial revolution did begin much earlier than was recognised. Will try to write a summary piece on this. Unless you do it first!

Winton Bates said...

You are welcome, Jim. Over the next few days I want to finish writing about the McKinsey book, "No Ordinary Disruptions", then try to come to grips with CEDA's report, "Future of Work".

Jim Belshaw said...

Look forward to it, Winton.