NCPA - National Center for Policy Analysis

Some Hints On Raising Productivity

May 31, 1997

Since 1982, the average cost per unit of factory output fell in the United States, but rose in France, Japan and Germany. U.S. companies became more competitive, launching today's economic boom, and worker pay increased -- when one adjusts for years of inflation over-statement by the Consumer Price Index.

Greater productivity has been the key.

Here are some experiences from just a few companies:

  • Spending only a few million dollars on new software to predict production needs more accurately, Timken Steel in Canton, Ohio, increased output by 15 percent without investing the $20 million to $30 million in new plant and equipment that would otherwise have been required.
  • Also with the aid of computers, furniture-maker Herman Miller reduced by 20 percent the time it takes to deliver a product from the moment it receives an order -- enabling it to fill more orders.
  • By furnishing repair crews with laptop computers, the telephone company GTE reduced administrative costs and served growing populations with the same or fewer service people.
  • Technology aside, the Labor Department has found that increasing the average educational level of manufacturing workers by one grade can increase productivity by 8 percent.

Economists at the Federal Reserve Bank of Dallas recently examined the records of the 10 corporations with the most layoffs from 1990 to 1995. They found that while employment fell by nearly 30 percent at these companies, output declined by only 10 percent.

McDonnell-Douglas and Digital Equipment had each halved its work force, but increased output per worker by 43 percent and 82 percent respectively.

The reason why the U.S. has been increasing productivity, while rates have slipped in other developed nations, is not a mystery to economists: we are not as burdened by rigid labor regulations as they are. Often manufacturers there are forbidden or discouraged at attempts to downsize.

But workers are also consumers. They benefited when such firms as K-Mart, IBM and General Motors realized productivity increases of 20 percent or more since 1990 -- in terms of lower priced clothes, computers and cars.

Source: John Hood (John Locke Foundation), "The Market's Secret Weapon," Policy Review, May - June 1997.


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