Up-at What Cost?

One of the more fashionable worries in U.S. business is that a "productivity crisis," a slowdown in the growth of output per man-hour, is crippling American ability to compete against foreign industry. Some figures compiled by the Bureau of Labor Statistics, however, indicate that this fear is largely unfounded. In 1971, the BLS reports, unit labor costs--the figure that represents how much productivity gains have softened the impact of wage increases--rose only 2.7% in U.S. manufacturing. That was less than half the rate of the increase in Japan, Canada and some Western European industrial nations. Although the biggest reason for the difference was that pay increased more rapidly in foreign factories than in American plants, quickening productivity gains did play a major role in holding down U.S. costs. America's manufacturing productivity rose only 1.5% in 1970, but it jumped 3.4% in 1971. In the second quarter of this year it came to an annual rate of 5.2%, and since wages rose at a slower rate than production, unit labor costs actually dropped a bit.

Before managers can celebrate, they must figure how much of the productivity gain is a temporary result of the business surge and how much may reflect more basic factors. Some hint of the basic factors is contained in reports by the BLS and the federal Price Commission, which cite the average annual increase in productivity for major industries in the past dozen years. For the first time, these statistics give businessmen a chance to rate their productivity gains against the average for their competitors. They also enable economists to figure out just where productivity gains have been occurring and why.

The statistics clearly indicate that productivity gains result much more from heavy business investments in labor-saving machinery than from zealous work by employees. The oil-pipeline industry led all others, with a 1960-70 average annual productivity increase of 10.1% a year. Some reasons: pumping stations along the newest lines are unmanned and computer-controlled; linewalkers have been replaced by airplane patrols checking for leaks. The sugar industry recorded an average annual gain of 4.2%, largely because it has been making greater use of power scoops and shovels to move sugar around in mills. The shoe industry had the lowest gain, .3% a year, because it still relies mostly on handwork.

However large, productivity increases cannot be automatically equated with progress; in fact, the opposite may be true. Railroading, of all industries, recorded a sharp productivity gain, despite the constant complaint of its executives that they are being featherbedded into bankruptcy. Among other things, the roads knocked off most of their passenger trains, which require larger crews than freight trains do, and thereby made it much more difficult for travelers to get from city to city. The soft-drink industry raised productivity by 5.1% annually, partly by switching to nonreturnable bottles, which threaten to bury U.S. cities under mounds of trash. On the other hand, coal-mining productivity dropped last year, largely because companies have had to devote many man-hours to making miners' lives safer and more comfortable and to lessening environmental damage.

That does not mean that raising productivity is an unworthy goal. Higher productivity remains a key to reducing inflation, raising living standards and enhancing U.S. competitive strength. But it must be sought with an eye to social as well as economic costs.

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