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Why Weak Productivity Growth Matters To The Economy


There is one sure way to drive up wages in this country. It's to increase productivity. That's the amount of stuff we produce for every hour of work. If people produce more, it is, at least in theory, possible to pay them more. But productivity growth has been weak lately. To find out what's going wrong and what to do about it, we've reached out to David Wessel. He's director of the Hutchins Center at the Brookings Institution and also a contributor to The Wall Street Journal. Hi, David.

DAVID WESSEL: Good morning, Steve.

INSKEEP: How long has this been a problem?

WESSEL: Well, it's been a problem for about a decade. Right now productivity is growing at a pace that - the experts tell us the economy can grow at about 2 percent a year. Now, President Trump and others would like to see it grow faster. And that would mean finding a way to raise productivity growth back to the levels we saw, say, in the late 1990s or in the period after World War II.

INSKEEP: Oh, and these are periods when there was a lot of technological change, a lot going on in the economy. And it was possible, for example, in the '90s with the internet, to do jobs in different ways. Are we not still in such a phase?

WESSEL: Well, apparently not. It's one of the conundrums here. On one hand, you see a lot of technology. Look at your iPhone, for instance. But it isn't showing up in the efficiency of production of goods and services. In the late '90s and early 2000s, it did. And it's beginning to worry people because this has been going on for a decade both before, during and after the Great Recession.

INSKEEP: I think I figured this out now. The iPhone is actually distracting me from work and making me less productive. So maybe technology is getting in my way here.

WESSEL: There are some people who think that. You know, like, is Twitter and Facebook and shopping online at work really making you more productive or subtracting from productivity?

INSKEEP: (Laughter) OK. So we have this problem. Does this mean that getting beyond 2 percent annual growth is impossible? Because 2 percent raise a year - that sounds OK, but it's not a great raise.

WESSEL: So there's some economists - Robert Gordon at Northwestern University, for one - who thinks that the wonders of the internet and the iPhone just aren't as economically potent as, say, the arrival of electricity or motorized transit. So he's kind of gloomy going forward. But I was kind of cheered to see that a couple of other economists, Dan Sichel and Lee Branstetter, are much more optimistic.

What they argue is that the official data - the official productivity investment data - don't properly record all the seeds of innovation and investment that are being planted today that they think will pay off in the near future in more efficient health care, smarter robots, e-learning that's better. And so they think we can do substantially better over the next decade than we have over the past.

INSKEEP: OK. That sounds cool, David. But if we're thinking about jobs and improving people's wages, you were just referring to technology like robots that would replace people. And maybe one person would end up doing what had been the job of 10. Is there a danger that this technology would make us more productive but actually make the job market worse?

WESSEL: Well, look. Productivity growth can and often does eliminate jobs in industries that harness the technology aggressively. That's what happened when we mechanized the farm. But what history tells us - even recent history - is that we lose jobs in one place, and we get jobs somewhere else and that as wages go up, people spend more money. And that creates more goods and services and more demand. The big question now - is this time different? Are robots and artificial intelligence somehow going to spell the end of work, even though that has never happened before?

INSKEEP: What is the government's role in nudging things in the right direction?

WESSEL: Well, as Ben Bernanke, the former Fed chairman, put it recently, sometimes, growth is not enough. And what we've seen is a lot of unevenness in the economy. Some people are benefiting from surges in technology and productivity. And some people aren't. So he thinks we need a better - what he calls a more comprehensive set of policies - to help individuals and communities that are battered by extraordinarily rapid change, better job training, help for people to move from one place to another and so forth.

INSKEEP: We need to think bigger.

WESSEL: We need to think bigger. And we need to remember that the government policies can help grow the economy, but they also have a role in making sure the fruits of that prosperity are more widely distributed.

INSKEEP: David Wessel, always a pleasure. Thanks very much.

WESSEL: You're welcome.

INSKEEP: He's with The Wall Street Journal and the Brookings Institution. Transcript provided by NPR, Copyright NPR.