Monday, August 15, 2016

The Enigma of Declining Productivity

It’s probably a good idea not to jump to too many conclusions, but a recent study has shown that when older workers are replaced by younger workers, productivity declines. At best, there’s a correlation. At worst, there's something resembling a causation.

The reasoning is simple. Older workers have more experience and know more. Younger workers, especially millennials, have less work experience and know less. When the elderly retire, to be replaced by the younger, productivity suffers. Or, so researchers have hypothesized.

Is this true at all times and in all places? Or is it more true for today’s millennial generation, a group that has been derided for its inability to launch, its defective work ethic and its having been indoctrinated with politically correct swill?

Of course, no one really makes this correlation, but today’s youngsters have been fed a diet of socialist propaganda mixed with encouragement to take time off and to find work/life balance. Surely, these bad attitudes must influence their productivity? Isn't that the point of the indoctrination.

In any event, Greg Ip reported the story in the Wall Street Journal:

Rapid retirements deprive companies of critical experience and knowledge, which undermines productivity across the entire economy. Demographics may thus be a critical factor in why the current economic expansion, which began as the first baby boomers qualified for Social Security, is the weakest on record.

One hastens to mention that in the Age of Obama, what did you expect? Given current government policies, no one should be surprised that the economic recovery is the weakest on record. And given the fact that these millennials are staunch supporters of Obama, thus true believers in Obama as Messiah, no one should be surprised that they are not very hard workers. They have high self-esteem, do not believe in competition and expect that the government will do it all for them.

The authors of the study attribute it all to experience. Which certainly makes sense. The more experienced you are, the more you know. The more you know the better and more efficiently you work. Better yet, the more experienced you are, the more you can guide younger workers.

Ip writes:

The authors note: “An older worker’s experience increases not only his own productivity but also the productivity of those who work with him.” All else equal, experienced workers are more productive. One study found that productivity peaks at age 50, when productivity is 60% higher than for the average 20 year old.

A journeyman carpenter doesn’t just work faster than an apprentice; he also helps the apprentice learn the tricks of the trade. New doctors diagnose patients more accurately under the tutelage of experienced practitioners. A rookie salesman learns the territory faster in the company of longtime veteran.

But, you might have thought, there is a downside to aging:

Of course, aging can also cut in the opposite direction. Older workers may be slower to adapt to new technology. If laid off from a dying industry, their experience may be irrelevant to a new one. Older workers are more likely to suffer from injury or illness and less likely to have a college degree.

But these disadvantages have shrunk: The average 60-year-old in the 2000s was as healthy as the average 55-year-old in the 1970s, and in many occupations, cognitive skill matters more than physical stamina.

You would think that younger workers would be more tech savvy, thus capable of doing more with less effort. But it might well be that younger workers waste more time on techno gadgets that add little to productivity.

At the same time, younger workers should have more stamina, a greater ability to stay up all night and to work 100 hours a week.

One must add, because no one else is going to say it, but the younger generation is more gender-diverse. One does not know whether young women, trying to balance work life and home life, diminish productivity. And one does not know whether young men, having been fed the gospel of work/life balance are doing the same.

The studies offer suggestions and an intriguing correlation. They do not give us a definitive answer to the enigma of lost productivity:

The productivity slowdown is a puzzle. Businesses appear reluctant to invest due to financing constraints, a dim sales outlook or a paucity of exciting new innovations. The new research suggests retirements could be part of the story. By applying their state-level findings to the whole country, the authors estimate that aging will reduce growth by 1.2 percentage points between 2010 and 2020, with two-thirds of the effect attributable to reduced productivity.

How precise is the correlation? Not very precise at all. Ip notes the following:

To be sure, the precise magnitude can be debated; most countries, regardless of demographic profile, have suffered a productivity slump. 

This datum would suggest that while age and experience count, other factors count also.

As for the solution, some suggest that the best approach is to discourage older employees from retiring. But, if that happens, companies will have fewer open positions for younger employees. This solution will tend to increase the unemployment rate for young people. This will mean more camping out in Mom and Dad’s basement, less partying and less sex. 


AesopFan said...

My first real job after college was with a small computer-services company (by small, it was the boss, me, and one other tech). As business grew, Boss decided we needed a secretary/receptionist, so he hired an older woman who had retired but needed a bit of extra money, because she could get more done in half-a-day (and done correctly) than any of the newly minted Business School graduates.

It's not just age and treachery that trump youth and enthusiasm; it helps to know what you are doing.

(However, there is a balance in making openings for younger hires; it's just that they often are replacing older workers rather than being mentored by them and then succeeding them -- not quite the same thing.)

(And then there's the whole H1-B visa thing, where younger, inexperienced, and above-all cheaper workers are explicitly replacing older, experienced, and more expensive ones.)

David Foster said...

"Technology" by itself does not increase productivity; it has to be employed intelligently. Many implementations of large-scale systems are done with little consultation with the users and little understanding of how information really needs to flow in the organization. A particularly horrible set of examples can be found in the implementations of Electronic HealthCare Records; there are also plenty in other industries. I have rarely met anyone who felt that his company's 'Enterprise Resource Planning System' really helped more than it hindered for (as an example) new product introductions or pricing strategy changes.

Too much focus on the latest technology; too little focus on using it properly.

David Foster said...

There are also a lot of cases when the automation is used to take humans out of the loop inappropriately. We were just talking about this at Chicago Boyz. Many chain stores have 'push' inventory systems where headquarters decides the inventory levels of each item at each store...input from store management is neither desired nor accepted. This results in situations like the Wal-Mart in Florida where you can't find a fan from January to March.

All the current hype about Big Data will likely drive a lot more of this kind of things.

David Foster said...

A particularly awful example of what can happen when automation takes humans out of the loop occurred on the Washington Metrorail system. See my post Blood on the Tracks:

Ignatius Acton Chesterton OCD said...

My own hunch is that productivity is declining because the people in the workforce are exhausted from working more for less, a trend that's been going on for 15 years at least. Employers have endured 9/11, the 2008 crash, and now the regulatory burden of Obamacare. They have no visibility, so they're more cautious about investing in new equipment and expanding payrolls because they aren't sure about the profitability forecast. So they do more with less, including people. And David Foster is correct, we have machines, processes and algorithms driving human behavior instead of focusing human behavior -- people must fit the system, not the systems maximizing human contribution. It's exhausting. Look at the workforce participation numbers, then look at corporate profitability and the rising prices for stocks. There's something incongruous about all of it. So that's my hunch on the productivity mystery.