Mis-Measuring the New Economy: Three Ways We’re Measuring Modern Productivity Wrong

“The sky is falling! The sky is falling!” – Chicken Little in the ancient children’ fable.

Whenever the government posts its annual productivity numbers, media pundits immediately start wringing their hands over our “stagnating” national productivity. What they don’t tell you is that productivity actually rises every year. It’s productivity growth that worries them.

But if productivity is rising, doesn’t it lift productivity growth too? Well… yes. But not as much as the establishment thinks it should.

At the risk of oversimplifying a complex topic: decades ago, economists decided a healthy economy should grow at least 3% annually. Recently, we’ve averaged less than 2%. Their concern would be reasonable if the economy were static, but in the last 30 years, global trade and the IT revolution have completely changed American business. Economists still measure economic growth the same old ways… and they’re missing a lot. This might not seem to matter at the individual level, but it does if their measurements complete ignore your personal or team productivity.

The Problems

At its most basic, productivity represents the amount of work achieved per unit of time. But not all productivity shows up on the balance sheet. Let’s look at some problems with the way economists have mis-measured productivity in the Information Age.

  1. They’re using the wrong tools. As Roger Martin pointed out in a 2015 HBR article, economists measure “apples and oranges” the same way. They assume when one item uses comparatively less labor to make or procure than another, for the same price earned, the workers producing the first item are inherently more productive. This ignores the effect of research, the recent decrease in manufacturing times for many products, and the fact that businesses charge whatever the market will bear. Hence, an iPhone costs three times more than an LGE phone made using the same parts in the same amount of time. Does that mean Apple is more productive than LGE? Further, global competition forces prices down. Suddenly, the X-Box that cost $200 last year now costs $100. Did productivity drop by half? No. The hours spent to make the product remained the same.

    Economic growth also depends on how much people spend. Until the 1950s, when post-war politicians and economists convinced us to start spending more, Americans were tightwads due to the harsh lessons of the Great Depression and World War II. Suddenly, 3%+ GDP growth became normal as we evolved into a super-consumer society. Now, post-Great Recession, not everyone spends as much as we did in the ’90s and early naughts.

  2. They can’t measure “free.” If you Skype with another Skype user, it’s free. Wi-Fi is free at the library and Starbucks. Smartphone Wi-Fi hotspot: free. Google: free. Basic Evernote: free. So are many games, basic Cloud storage, and most knowledge. That tiny smartphone is also a supercomputer, GPS reader, compass, walkie-talkie, music player, atlas, video/still camera, voice recorder, notepad, games machine, flashlight, calculator, calendar, TV, book reader, point-of- sale portal, auction house, and more—you can even use it to deposit checks. Sure, you’re paying for your Internet or phone service—but the rest is gravy. These products amuse us, educate us, save us money, increase our productivity, find us jobs, even build our businesses… for FREE. No one measures that, so they’re not reflected in our productivity!

  3. They don’t take scientific advances or decision-making into account. Not everyone buys a car or computer every few years. Plus, overall, product quality has increased. We need fewer high-dollar goods and repairs. Every medical cure or less-expensive testament cuts healthcare spending. Saving instead of spending, a smaller but more efficient financial sector that makes fewer loans, Google Maps, watching YouTube to learn to play the piano—none of it shows up in the GDP. In fact, these things decrease economic growth even as they increase the quality of our lives.

The Mis-Measurement of Money

Our economy isn’t perfect, but some of its problems may be caused by the old economic measurement misreading our new economy. The establishment’s reaction to decreased economic growth reminds me of what sometimes happens when the Bureau of Labor Statistics publishes its annual American Time Use Study. Sometimes, a news outlet embarrasses itself by overreacting upon learning the “average American” works about four hours a day. They fail to notice that ATUS includes everyone over age 15—including schoolkids, retirees, part-time workers, and the unemployed—and covers all days of the year, including weekends and holidays.

So really think about apples and oranges when you’re contemplating the fruits of your labor!

About Laura Stack, your next keynote speaker:

© 2019 Laura Stack. Laura Stack, MBA, CSP, CPAE is an award-winning keynote speaker, bestselling author, and noted authority on employee and team productivity. She is the president of The Productivity Pro, Inc., a company dedicated to helping leaders increase workplace performance in high-stress environments. Stack has authored eight books, including FASTER TOGETHER: Accelerating Your Team’s Productivity (Berrett-Koehler 2018). She is a past president of the National Speakers Association, and a member of its exclusive Speaker Hall of Fame (with fewer than 175 members worldwide). Stack’s clients include Cisco Systems, Wal-Mart, and Bank of America, and she has been featured on the CBS Early Show and CNN, and in the New York Times. To have Laura Stack speak at an upcoming meeting or event, call 303-471-7401 or contact us online.

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  1. Many thanks Laura for a great informative post. — Barry.