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Productive workers put brakes on hiring

Adam Belz, Star Tribune (Minneapolis) –

Americans have gotten so productive, they may have worked themselves out of 4.4 million jobs.

It’s a paradox playing out across the country: Economic output has returned to prerecession levels, but job creation has fallen short.

That means businesses are producing more goods and services with fewer workers. While that’s great if you’re running a company, it’s not so great if you’re one of the 12.8 million Americans looking for a job.

“It’s a difficult story, but it’s one of economic change,” said Steve Landefeld, director of the Bureau of Economic Analysis.

The United States has recovered only about half of the 8.6 million jobs lost in the Great Recession. The reasons for the lag are diverse. Technology is helping workers produce more with greater speed — or replacing them altogether. The tough economy has forced companies to get leaner and smarter. Global uncertainty has curtailed risk-taking investment.

The economy is reconfiguring itself in ways no one fully grasps, but economists say worker efficiency is producing part of the job market undertow.

“To me that’s the ultimate research question in this right now,” said Louis Johnston, who teaches economics at the College of St. Benedict and St. John’s University in St. Joseph, Minn. “It’s going to take a while for us to figure out what this all means.”

In Minnesota, the trend is most pronounced in manufacturing. Output by the state’s manufacturers rose 13 percent from 2007 to 2011, while the number of manufacturing jobs fell 12 percent.

Economists say the convergence of globalization, technology and the belt-tightening of the recession has goosed manufacturing efficiency, crystallizing a transformation that’s been building for decades. Businesses, the argument goes, had to go on a diet and hit the gym when the housing bubble burst, and they emerged leaner and more productive.

“There was a lesson learned to some extent, by the world, that maybe I don’t have to have all those people to accomplish that,” said Joel Wittenbraker, who owns and runs Mactech Inc., a Red Wing company with 80 employees. “People realized that maybe they could do it with a little less.”

Mactech is an international firm that builds, sells and rents tools that cut and bevel pipes. The company has tried to be more efficient since the recession hit. Mactech bought three new computer numerically controlled machining centers for the factory but added only one machinist. Workers have learned to operate two machines instead of one.

Machinists and managers now build mockups before big jobs to develop a standard procedure. Laser equipment gives them quicker, more accurate measurements for design and production. Workers preassemble kits of tools and parts for certain types of jobs, rather than hunting through shelves at the last minute.

“It saves us hours on every rental, but even more importantly it saves us thousands in not having to make a second shipment,” Wittenbraker said.

In the past year, the company has hired about five new workers. Meanwhile, sales have risen 25 percent.

The power of technology

The disconnect between economic growth and job creation is driven in large part by technology, said Tom Stinson, Minnesota’s state economist.

Companies invest in software, equipment and automation instead of new employees. They manage inventory and workflow more thoughtfully. They search for resourceful, highly skilled workers to manage operations that require fewer and fewer humans.

“The productivity is not just replacing people with machines. It’s also replacing low-value production with high-value production,” Stinson said. “That’s the place we’ve got to be focused on — building better things and building things better.”

Building better doesn’t always mean hiring people. In fact, employers building parts for pacemakers or hydraulic machinery must be more careful who they hire. Attention to detail, math and problem solving can be as important on factory floors as they are at software companies.

And innovation that threatens established jobs can come from anywhere. Debra Lindell, a family and marriage therapist in Wayzata, has raised $5 million in angel investing behind her company Empathic, which sells a Web-based medical records, claims and billing system for mental health clinics. If the business catches on, Lindell believes it will improve mental health clinics everywhere. But one group of workers will lose their jobs: those who handle claims, billing and accounting for psychiatrists and therapists. Empathic automates all of that.

“It’s good for business, but it’s not necessarily good for the economy,” said Lindell, who already has more than 350 customers.

A new revolution

Johnston, the professor in St. Joseph, sees a historic change in the way the U.S. economy works, like the conversion from steam to electrical power in the 1920s and 1930s. That shift spread factories across the landscape instead of concentrating near river and lakes.

The new revolution is telecommunications, which spreads production farther and automates everything, even factory work and health insurance claims submissions.

“If it’s the technological change driving everything, well then, there really isn’t that much to worry about in the sense that standards of living are going to keep going up,” Johnston said. “We just need to make sure that it’s distributed better.”

Some aren’t so sure. Michael Mandel, an economist at the Progressive Policy Institute, argues that productivity isn’t surging nearly as much as some believe.

The numbers “don’t mean what they look like they mean,” Mandel said. “Minnesota manufacturing is not nearly so robust as the numbers make it appear.”

Mandel says government agencies that track output have trouble assessing the value of goods in the global supply chain and end up inflating certain types of manufacturing output, especially computer and electronics goods, which cross international boundaries several times before a company sells the finished product.

Landefeld with the Bureau of Economic Analysis said Mandel may have a point but is “dramatically overstating” the problem. The BEA and the Bureau of Labor Statistics say the margin of error on manufacturing output is small. It’s convenient to chalk up productivity growth to a measurement problem, Landefeld said, but the truth is more complicated.

“The productivity is there,” Landefeld said. “It’s just what gets people is it’s not the productivity of the factory floor.”

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