Economics of being Productive

One thing that has always puzzled me is the economics of efficiency and productivity. We all learn that increased productivity is good. Keeping things simple, this means that if in a month two persons can produce a car and a month later one person can produce a car then we have increased productivity and our economic well-being has increased. No matter that our unemployment has increased. The assumption perhaps is that the unemployed person can find a new job in a different industry. Good luck.

I would argue that increased productivity can in fact be bad. Maybe at a micro level, meaning from a corporate perspective it can be good, meaning lower labor costs produce more profits. Assuming that we measure goodness as maximizing profits. But on a macro level, meaning the society at large, increased productivity if measured in labor costs can increase unemployment and thus be bad for society. Of course, I am assuming that the large the amount of idle people is not a good thing.

I am not advocating that people be employed doing useless work (although the thought had crossed my mind). Rather, I would change the concept of productivity to include minimizing unemployment. Simply put, this may and probably does conflict with efficiency in production. But it many not conflict with social well-being. Where social well-being is partly defined as minimizing unemployment.

Again, consider a rather simple example. If there are two people working on building a car, then both of them have disposable income to purchase goods and services. If only one person is employed then of course then number of people that contributes to economic activity has gone done. So disposable income has gone down and thus other consumer industries have been impacted.

So why is this important and does it really matter?

In an isolated environment, meaning in a country with limited external trade, then I suppose we could maximize economic activity by limiting efficiency and unemployment. But with globalization and companies with a high degree of trans-national activity, maximizing the economic well-being of any specific country is not a high priority. Maximizing profits is, and that could be at the cost of higher unemployment in one country while employing more people in another country.

So this is a prelude to discussing large trans-national corporations such as GE who have no or very limited sovereign loyalty. In other words they don't care if they create unemployment by moving their labor force around to different countries as long as they maximize their profits. For example, GE moving jobs from the US to other countries certainly contributes to unemployment in the US. But what does it care? As long as it can maintain or increase sales world-wide then increasing unemployment (in the US for example) but increasing profit is a good thing.

OK, so I dealt with productivity and globalization and efficieny. Maybe it was a little disconnected. What I want to do is create/examine policies whereby a country can use a measure of productivity that includes unemployment as a mechanism to limit the impact of globalization on it's economic well-being. In other words, keep the jobs at home.