Troubling Dip in Efficiency

One of the U.S. economy's most vexing ailments is a slump in productivity--that measure of output per man-hour that is the best gauge of national economic efficiency. When labor, materials and machines are managed effectively and productivity rises, more goods and services are turned out. Managers can raise wages without adding to production costs or boosting prices. Indeed, a sustained rise in productivity is essential if the U.S. is ever to quell inflation while expanding its economy fast enough to meet its needs for more job opportunities and improved housing, education and medical services.

Yet, according to the Labor Department, in this year's first quarter, private nonfarm productivity declined at an annual rate of 3.5% largely as a result of the severe first-quarter drop in real output of goods and services.* As is usual in times of an economic slowdown, both workers and machines operated below optimum efficiency because employers did not trim their work force as fast as they reduced production. The main cause of the productivity slump in the first quarter was that the gasoline crisis forced automakers to cut production of big, gas-drinking cars. Since auto manufacturing is one of the nation's largest and most productive industries, the sharp decline in output contributed heavily to the productivity drop.

Doubtless the deep first-quarter downturn in productivity is temporary and will be reversed when employers either lay off more workers or increase production--or both. Yet the longer-term trend is not totally reassuring. In global terms, the U.S.'s long lead in productivity has been narrowed. The country's productivity grew at a healthy annual average of about 3% through most of the postwar period, helped by such developments as the fast spread of computers. But between 1965 and 1970 productivity grew only 2% per year in the U.S. v. 13.2% in Japan, 5.7% in West Germany and 3.9% even in strike-prone Britain. In the early 1970s, when the economy bounced back from recession and then surged, productivity climbed smartly (see chart). But in the final quarter of 1973 it began to drop, and for all last year the U.S. did much worse than most other industrial nations.

Increased Discontent. Some socially beneficial actions have hurt productivity. For example, new federal mine-safety regulations have cut into productivity in mining for the past two or three years. Beyond that, part of the longer-term problem is rooted in social changes. There is an increasing restiveness among young workers, reflected in on-the-job drug use, alcoholism and high absenteeism. A survey of 3,500 young people between 16 and 25 by Social Psychologist Daniel Yankelovich, released last week, concluded that discontent among young workers who do not have college degrees has greatly increased in the past four years (see EDUCATION). In general, fewer and fewer of them believe that "hard work always pays off."

Labor has also resisted some changes in technology and work rules, suspecting that they would lead to layoffs and more production speedups. This attitude was starkly mirrored in the New York City printers' strike against the Daily News, prompted largely by the newspaper's decision to use automated typesetters. An agreement was finally reached last week--but only after 14 months of deadlock and costly delays in introducing productive machines. Also, too many managers are convinced that people do not want to work and need tight supervision. Yet experiments in rotating assignments and granting more on-the-job autonomy to employees have increased output at Procter & Gamble, IBM and AT&T, among many other firms. At Motorola, portable beepers for paging doctors and others are no longer assembled on lines; one worker gets the satisfaction of putting the whole unit together. At Kaiser Aluminum's plant in Ravenswood, W. Va., maintenance costs and tardiness fell after the company removed time clocks and permitted workers to supervise themselves and decide what machines to service and when.

Productivity has also been impeded because management in recent years has not built enough new plants or replaced obsolescent equipment. The lack of modern capacity has caused some productivity lags in railroads, steel and other industries. Of the eight leading industrial nations, the U.S. has been reinvesting the smallest portion of its gross national product on new plants and equipment, about 10%. Japan has been plowing back nearly 20%, Germany and France 15%. Businessmen have not been able to invest as much as they might like in productive machines in recent years, partly because of a profits squeeze and a credit crunch. In addition, much of what they have spent has gone for probably necessary but essentially unproductive pollution-control devices. There is, however, one good sign: businessmen are stepping up purchases of modern productive machines, including new automated steel-twisting braiders that can double the output of older machines and robots on assembly lines that relieve workers of more onerous chores, such as painting auto engines. In all, capital spending for the year is expected to rise about 13% above last year's $100 billion, despite the economic slowdown.

Quality of Work. The biggest drag on overall productivity advances is not in manufacturing but in the service field, which employs more than 60% of the nation's workers and is hard to automate. Simply measuring--much less improving--the productivity of policemen, pilots, teachers or symphony conductors is far tougher than assessing the output of an assembly-line worker. Even so, adept use of computers has raised productivity in such fields as medicine and sales management.

C. Jackson Grayson Jr., once head of the Price Commission, suggests that some new productivity formula should be devised that takes more into account the quality as well as the volume of a worker's output. The Government, Grayson argues, should follow the lead of Japan, West Germany and Israel, which have productivity institutes to measure the efficiency of industries, develop new management methods and counsel business. Yet the U.S. Government has moved in precisely the opposite direction. The less than adequate National Commission on Productivity was downgraded last year to an Office of Productivity, and its staff and appropriations were slashed.

*The overall decline in productivity--including a big drop on the farms--was 5.5%, but economists do not give much credence to that larger figure because official measurements of farm productivity are erratic and grossly imprecise.

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