Airmiles Friedman

Someone really needs to sit Tom Friedman down for a little chat about economics.

His piece today is about how amazingly productivity is rising as a result of new gadetry. But it\’s not producing any jobs:

The bad news is that credit markets and bank lending are still constricted, so many companies can’t fully exploit their productivity gains and spin off the new jobs we desperately need.

But, err, rising productivity doesn\’t create new jobs. Never has done.

Rising productivity destroys jobs, always has done.

Take the example he uses of a sofa making company. It used to use 20 hours of labour to make a sofa. Now it takes 3 hours. That\’s rising productivity of labour.

So how has this destruction of 17 hours of needed labour created jobs? It hasn\’t of course.

Those who used to do this 17 hours now have to go off and find something else to do with their time.

And they will do something else with their time. Wipe the baby\’s bottom, cure cancer or just enjoy the leisure of sitting on the stoop.

As a society we like rising productivity for the result is that we get both a sofa and a wiped baby/cure for cancer/more leisure.

But it doesn\’t create jobs, it destroys them.

9 thoughts on “Airmiles Friedman”

  1. I take your point, but in practice the cycle for any particular firm will be greater productivity -> greater profitability -> expansion -> recruitment, until negative returns to scale offset the firm’s initial productivity advantage.

    (sure, there are *some* managers of high-productivity firms who’re happy to simply take large margins and no y-0-y growth, but they’re filed alongside ‘hens’ teeth’ and ‘honest PR men’)

  2. Unless they’re part of a big portfolio of companies under an umbrella group and the umbrella group wants to spent its money on trying to sort out high growth/emerging but lower margin businesses.

    Which is quite common.

  3. I remember back in the late 70’s pundits promising 10, 20, etc. hour working weeks resulting from the coming technological revolution, and a big concern then on TV programmes like Tomorrows World was what we would do to fill our leisure time. Being nearly as cynical then as I am today, I couldn’t help wondering if we were more likely to enter a bleaker future comprising a much diminished but wealthier working class, and the creation of an ever growing army of permanent unemployed, what we have now come to recognise as the under class.

    It seems my cynicism was not misplaced.

    Even today, when hindsight must confirm my youthful observations, the penny hasn’t dropped, or is being ignored. There was a light weight piece on local TV just last week about future expansion of self-check out tills at Tesco. If this were to be fully implemented, how many check out staff would lose their jobs? Just in Tesco’s alone maybe a quarter of the workforce (1oo,000), nationwide for all shops – god only knows.

    So is improved productivity bad? No, I’m no ludite, but exporting jobs to China, increased mechanisation, and increased productivity has no possibility of being offset by job creation, so what do we do?

    Far be it from a right winger like myself to look for a socialist solution, but the best that I can come up with is perhaps we should all accept a reduction in our standard of living by agreeing to more generous dole payments or even a basic living grant for all as of right, with any earnings added on top as a sort of bonus.

    Even after suggesting the above I can see all sorts of problems with it like moral hazard, encouraged immigration, emigration of the better off etc., but there must be some alternative to the existing trend.

  4. more generous dole payments or even a basic living grant for all as of right

    A basic living grant (or CBI) would be a better solution than more generous dole payments. I think it would be better if we could get rid of all the means-tested benefits and tax-credits. The complexity of these schemes, and the high effective tax rates of withdrawing them if people do get a job, probably does more to create unemployment than any productivity improvement.

  5. if your sofa maker is now available for another job – in times of prosperity will this not enable another job vacancy to be filled and so make another job?

  6. Mr Malpas,

    In a time of prosperity I guess we can assume that employment is as close to 100% as possible so that would only work if your now unemployed sofa maker, or some other smart cookie, devised something new for him to do. Of course this is how we dragged ourselves out of our caves all those years ago, but it does rely on people using their newfound free time to do such devising.

    Since necessity is the mother of invention, one has to wonder whether things like generous welfare provisions don’t hamper that ingenuity.

  7. Dear Mr. Remittance man,
    where are you?.
    even clicking on your name at the above comment, just takes me back to your old site.

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