by Angela
November 14, 2021
LONG READ
Even as the health side of the pandemic slowly improves, the US economy remains in a strange place
Labor markets are tight, and a record percentage of respondents in a monthly Gallup poll of Americans said this was a good time to find a quality job. But despite the strong job market, the public is overall not satisfied with the state of the economy. In the same Gallup poll, most respondents said the economy was “only fair” or “poor.”
But lurking under the challenging transitions are encouraging signs that America’s economic outlook may get better once the pandemic is fully in the rearview mirror and supply chains are no longer strained. One such sign is the fact that businesses are using what they learned from the COVID-19 era to become more efficient and get better at doing more with less.
Perhaps one of the most visible examples of businesses learning from the pandemic is in how we eat out. When you sit down at the table, you may be asked to scan a QR code and pull it up on your phone instead of being handed a paper menu. Once you pull up the menu, it’s shortened and streamlined. And once you’ve finished up your meal, another QR code may allow you to pay your check online, without having to flag down a server or wait for a paper receipt.
These changes are not just about reducing the risk of virus spread — but also about boosting productivity. Servers who don’t have to come to your table as many times per meal can serve more tables. Nobody needs to print, distribute, retrieve, or clean menus. A trimmed-down menu doesn’t require stocking as many ingredients, and the items can be made with fewer kitchen staffers.
Even fast-food restaurants, whose business models are already designed to be more labor-light than full-service restaurants, are taking advantage of the pandemic to accelerate the shift toward online ordering and push customers to take out instead of eating in, which reduces the need for staff to take orders and clean tables.
These changes all make restaurants more efficient — allowing them to take in more customers and, in turn, make more money. And if customers find them acceptable, that means they’re likely to stick around well after the pandemic is over. And it’s not just restaurants that are going full speed ahead with changes to their business operations. Airlines are leaning into booking and rebooking through their apps to reduce the need for staffed call centers, medical practices are embracing telehealth visits for patients, retail outlets are pushing customers toward more efficient online ordering, and many industries are allowing more workers to work permanently from home.
Businesses have been punched in the mouth by the pandemic — health restrictions, a tight job market, a supply-chain crunch — and are responding by jumping into the future.
These new technologies and more efficient operations don’t mean companies reap only bigger profits, and they certainly don’t mean that workers are going to get screwed over by robots taking their jobs. These changes hold the key to a faster-growing US economy and higher paychecks for Americans — if we can make sure the gains are divided evenly.
The benefits of forced experimentation
While the pandemic is an extreme case of adapting to sudden changes, it’s not the only time that workers and businesses have been forced to reinvent their habits.
In 2014, a subway strike in London forced large numbers of commuters to find alternative routes to work. For most workers, this was simply a pain, and when the London Underground returned to normal operations, they returned to their normal commuting patterns. But in a 2017 paper, the economists Shaun Larcom, Ferdinand Rauch, and Tim Willems found that 5% of strike-disrupted commuters permanently adopted a new way of getting to work.
Why? Well, it appeared they’d never thought very hard about whether there was a better way to get to work, and they found one only when they were forced to look for it.
The pandemic had a similarly disruptive effect on our lives. Most pandemic-driven disruptions are bad for the economy, and when we can go back to normal, we will. But sometimes, we’ve found — businesses have found, workers have found — the new way of doing business is better than the old way. That’s a silver lining, a benefit we get to keep even after the pandemic is over.
Sometimes, as is the case with the mRNA vaccines developed by Pfizer and Moderna, we are getting the benefit of accelerated investment in a useful technology. Sometimes, it’s because businesses have been pushed to streamline how they operate — either to cope with the pandemic itself or with the difficulty of hiring workers as we’ve come out of the pandemic.
And sometimes, it’s because customers have been forced into flexibility: People have been forced to adapt to new systems that they otherwise would have found too onerous or confusing. Phone-ordering technology in restaurants isn’t new, but customers are increasingly resigned to the idea that they have to learn new technologies and download new apps to order. So firms have more latitude to ask customers to be partners in trying new things, even things that customers may have found annoying or arduous in the past.
Personally, I had never used a QR code before the pandemic. Now, like everyone else, I need to use them frequently. This forced adaptation makes it easier for businesses to roll out labor-saving processes that rely on a customer to know how to use such a code.
Learned efficiency
In August, sales at restaurants and bars in the US were 8.8% higher than they were in January 2020, before the start of the pandemic, up to $72 billion a month from $66 billion on a seasonally adjusted basis, according to the US Census Bureau. Yet the number of employees working at these businesses was 7.2% lower, a drop from 12.2 million to 11.4 million, also seasonally adjusted, according to the Bureau of Labor Statistics.
In other words, restaurants and bars are bringing in a lot more money than they were before the pandemic, even with fewer workers — in fact, they are getting about 17% more sales per worker than they did before this mess started. (And apparently not because they’re adding more hours to their existing workers’ schedules — the average worker in leisure and hospitality was working only 1% longer a week, according to data from the Bureau of Labor Statistics.)
Now, a significant chunk of that increase in sales is because restaurants and bars are charging customers more. Prices at these sorts of places in August were up more than 7% from January 2020. But even when you strip out the price hike, labor productivity — the formal term for getting more output per hour worked by an employee — still gained about 10% in less than a year. Isn’t that remarkable?
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Restaurants have adopted new technology — like paperless menus and online bill pay — to make workers more productive and service more efficient.
It’s all the more impressive because some COVID-19-driven changes were harmful for productivity. Spacing tables out farther, installing plexiglass barriers, and having to clean surfaces more often all ate up more man hours without adding to sales — therefore causing productivity to decline.
Admittedly, some of these changes, such as the elimination of printed menus, are already starting to go away as businesses move off a pandemic footing. Even though going back to the old ways may be more work, some of these changes may be annoying for customers — sometimes, you simply want to be handed a menu instead of having to pull out your phone and click through three screens to see which drinks are available.
But some of these changes are here to stay, which means a permanent change in the relationship of the restaurant business and its employees — one that should mean permanently higher productivity, lower prices for consumers, and, if the job market remains strong, higher hourly wages for workers.
Higher productivity benefits workers and consumers when the overall economy is strong
Higher productivity makes it possible for businesses to raise wages. If a business is making more money because of a new technology or a streamlined service, it’s more likely to do what it takes to keep the lights on and bring in the increased revenue. If that means boosting employees’ pay a bit so things keep running smoothly, so be it. For similar reasons, productivity gains also make it possible for businesses to sell products at lower prices or improve products without raising the price.
But how the gains from increased productivity are divided — among workers, customers, and owners — depends on the broader economy.
The distribution tends to be according to who has power in the market: If labor is scarce, wages will have to rise to incentivize people to take jobs; if consumers have many options, there is pressure to keep prices low to bring people in; if people are wary of investing in businesses, investors can demand businesses keep the money for themselves in the form of higher profits.
Currently, employees have the bulk of the power. The labor market is tight — firms are trying to keep up with the sudden spike in customers and fill jobs, but with fewer available workers, businesses are having to pay up to recruit employees. This means the gains from productivity are more likely to be passed down to workers.
CUSTOMERS ARE WORKERS AFTER WORK
Labor markets are tight, and a record percentage of respondents in a monthly Gallup poll of Americans said this was a good time to find a quality job. But despite the strong job market, the public is overall not satisfied with the state of the economy. In the same Gallup poll, most respondents said the economy was “only fair” or “poor.”
But lurking under the challenging transitions are encouraging signs that America’s economic outlook may get better once the pandemic is fully in the rearview mirror and supply chains are no longer strained. One such sign is the fact that businesses are using what they learned from the COVID-19 era to become more efficient and get better at doing more with less.
Perhaps one of the most visible examples of businesses learning from the pandemic is in how we eat out. When you sit down at the table, you may be asked to scan a QR code and pull it up on your phone instead of being handed a paper menu. Once you pull up the menu, it’s shortened and streamlined. And once you’ve finished up your meal, another QR code may allow you to pay your check online, without having to flag down a server or wait for a paper receipt.
These changes are not just about reducing the risk of virus spread — but also about boosting productivity. Servers who don’t have to come to your table as many times per meal can serve more tables. Nobody needs to print, distribute, retrieve, or clean menus. A trimmed-down menu doesn’t require stocking as many ingredients, and the items can be made with fewer kitchen staffers.
Even fast-food restaurants, whose business models are already designed to be more labor-light than full-service restaurants, are taking advantage of the pandemic to accelerate the shift toward online ordering and push customers to take out instead of eating in, which reduces the need for staff to take orders and clean tables.
These changes all make restaurants more efficient — allowing them to take in more customers and, in turn, make more money. And if customers find them acceptable, that means they’re likely to stick around well after the pandemic is over. And it’s not just restaurants that are going full speed ahead with changes to their business operations. Airlines are leaning into booking and rebooking through their apps to reduce the need for staffed call centers, medical practices are embracing telehealth visits for patients, retail outlets are pushing customers toward more efficient online ordering, and many industries are allowing more workers to work permanently from home.
Businesses have been punched in the mouth by the pandemic — health restrictions, a tight job market, a supply-chain crunch — and are responding by jumping into the future.
These new technologies and more efficient operations don’t mean companies reap only bigger profits, and they certainly don’t mean that workers are going to get screwed over by robots taking their jobs. These changes hold the key to a faster-growing US economy and higher paychecks for Americans — if we can make sure the gains are divided evenly.
The benefits of forced experimentation
While the pandemic is an extreme case of adapting to sudden changes, it’s not the only time that workers and businesses have been forced to reinvent their habits.
In 2014, a subway strike in London forced large numbers of commuters to find alternative routes to work. For most workers, this was simply a pain, and when the London Underground returned to normal operations, they returned to their normal commuting patterns. But in a 2017 paper, the economists Shaun Larcom, Ferdinand Rauch, and Tim Willems found that 5% of strike-disrupted commuters permanently adopted a new way of getting to work.
Why? Well, it appeared they’d never thought very hard about whether there was a better way to get to work, and they found one only when they were forced to look for it.
The pandemic had a similarly disruptive effect on our lives. Most pandemic-driven disruptions are bad for the economy, and when we can go back to normal, we will. But sometimes, we’ve found — businesses have found, workers have found — the new way of doing business is better than the old way. That’s a silver lining, a benefit we get to keep even after the pandemic is over.
Sometimes, as is the case with the mRNA vaccines developed by Pfizer and Moderna, we are getting the benefit of accelerated investment in a useful technology. Sometimes, it’s because businesses have been pushed to streamline how they operate — either to cope with the pandemic itself or with the difficulty of hiring workers as we’ve come out of the pandemic.
And sometimes, it’s because customers have been forced into flexibility: People have been forced to adapt to new systems that they otherwise would have found too onerous or confusing. Phone-ordering technology in restaurants isn’t new, but customers are increasingly resigned to the idea that they have to learn new technologies and download new apps to order. So firms have more latitude to ask customers to be partners in trying new things, even things that customers may have found annoying or arduous in the past.
Personally, I had never used a QR code before the pandemic. Now, like everyone else, I need to use them frequently. This forced adaptation makes it easier for businesses to roll out labor-saving processes that rely on a customer to know how to use such a code.
Learned efficiency
In August, sales at restaurants and bars in the US were 8.8% higher than they were in January 2020, before the start of the pandemic, up to $72 billion a month from $66 billion on a seasonally adjusted basis, according to the US Census Bureau. Yet the number of employees working at these businesses was 7.2% lower, a drop from 12.2 million to 11.4 million, also seasonally adjusted, according to the Bureau of Labor Statistics.
In other words, restaurants and bars are bringing in a lot more money than they were before the pandemic, even with fewer workers — in fact, they are getting about 17% more sales per worker than they did before this mess started. (And apparently not because they’re adding more hours to their existing workers’ schedules — the average worker in leisure and hospitality was working only 1% longer a week, according to data from the Bureau of Labor Statistics.)
Now, a significant chunk of that increase in sales is because restaurants and bars are charging customers more. Prices at these sorts of places in August were up more than 7% from January 2020. But even when you strip out the price hike, labor productivity — the formal term for getting more output per hour worked by an employee — still gained about 10% in less than a year. Isn’t that remarkable?
Restaurants have adopted new technology — like paperless menus and online bill pay — to make workers more productive and service more efficient.
It’s all the more impressive because some COVID-19-driven changes were harmful for productivity. Spacing tables out farther, installing plexiglass barriers, and having to clean surfaces more often all ate up more man hours without adding to sales — therefore causing productivity to decline.
Admittedly, some of these changes, such as the elimination of printed menus, are already starting to go away as businesses move off a pandemic footing. Even though going back to the old ways may be more work, some of these changes may be annoying for customers — sometimes, you simply want to be handed a menu instead of having to pull out your phone and click through three screens to see which drinks are available.
But some of these changes are here to stay, which means a permanent change in the relationship of the restaurant business and its employees — one that should mean permanently higher productivity, lower prices for consumers, and, if the job market remains strong, higher hourly wages for workers.
Higher productivity benefits workers and consumers when the overall economy is strong
Higher productivity makes it possible for businesses to raise wages. If a business is making more money because of a new technology or a streamlined service, it’s more likely to do what it takes to keep the lights on and bring in the increased revenue. If that means boosting employees’ pay a bit so things keep running smoothly, so be it. For similar reasons, productivity gains also make it possible for businesses to sell products at lower prices or improve products without raising the price.
But how the gains from increased productivity are divided — among workers, customers, and owners — depends on the broader economy.
The distribution tends to be according to who has power in the market: If labor is scarce, wages will have to rise to incentivize people to take jobs; if consumers have many options, there is pressure to keep prices low to bring people in; if people are wary of investing in businesses, investors can demand businesses keep the money for themselves in the form of higher profits.
Currently, employees have the bulk of the power. The labor market is tight — firms are trying to keep up with the sudden spike in customers and fill jobs, but with fewer available workers, businesses are having to pay up to recruit employees. This means the gains from productivity are more likely to be passed down to workers.
CUSTOMERS ARE WORKERS AFTER WORK
Customers, meanwhile, are feeling the pinch of rising inflation. As people spend their pent-up savings from the pandemic, businesses are struggling to keep up and raising their prices to make the profits they need (though customers tend to also be workers, so they’re likely to come out ahead on net). If businesses were not finding ways to raise productivity, they’d have to charge customers even more.
If the job market stays hot, workers can demand larger paychecks and come out on top even as companies invest in new productivity-enhancing systems.
A cooler overall economy would reduce the benefits to workers and give companies less incentive to innovate and raise productivity. We saw this when the labor market was weaker. Employees did not have the flexibility to simply walk away and find another job. Businesses could instead hire another person on the cheap or overwork staff instead of investing in boosted productivity or sharing any gains with their employees.
If the job market stays hot, workers can demand larger paychecks and come out on top even as companies invest in new productivity-enhancing systems.
A cooler overall economy would reduce the benefits to workers and give companies less incentive to innovate and raise productivity. We saw this when the labor market was weaker. Employees did not have the flexibility to simply walk away and find another job. Businesses could instead hire another person on the cheap or overwork staff instead of investing in boosted productivity or sharing any gains with their employees.
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Whether the increased revenue from these productivity gains keeps making it to employees or businesses go back to simply pocketing the income will come down to how the economy is managed — particularly by the Federal Reserve
As it stands, the Fed has kept interest rates low and instituted a series of programs that have allowed the economy to heat up and the labor market to stay tight — helping workers reap the gains from the productivity boost. But how long the central bank can sustain its pro-worker stance and allow employees to reap these gains comes down to another question: Just how well can the Fed manage inflation?
The monetary conditions — most importantly, low interest rates — that foster higher wages can also push up prices, and the Fed’s support is one of the factors that has pushed inflation above the central bank’s long-run goal of 2%. Ideally, the further relaxation of pandemic-related restrictions and the easing of the supply-chain disruptions should help inflation cool off, but there are also worries that the price hikes could lead the Fed to increase interest rates and diminish workers’ power.
A key question is whether these factors that push down inflation will come fast enough for the Fed to wait for them.
How much could pandemic innovation boost productivity?
The pandemic-driven productivity boost is a win for not only labor but also the US economy overall. Before the pandemic, productivity growth had been disappointing for decades, with new technologies failing to produce substantial gains. While the early signs are that this time may be different, economists are wary to declare the issue solved.
Productivity growth was robust in the first two quarters of this year: over 4% in the first quarter and more than 2% in the second quarter, which easily outpaced the 1.2% average for the decade after the global financial crisis, according to Bureau of Labor Statistics figures. (In the summer, Heather Long wrote a useful story for The Washington Post about what this could signal for longer-run productivity gains.) But then the third quarter was terrible, with labor productivity falling 5% amid the Delta wave.
Productivity often goes up in times of economic distress because more junior workers and workers in lower-productivity industries are more likely to lose their jobs, which leaves behind a workforce that is smaller but more productive on a per-worker basis. Sometimes, as the labor market returns to normal, those lower-productivity employees are rehired, and productivity growth recedes.
As customers get used to new ways of doing business — such as ordering online and picking up in quick “to-go” lines — productivity gains could stick around even as the economy gets back to “normal.”
El Pollo Loco
Still, this time, analysts at McKinsey and Goldman Sachs are expecting a boost in productivity gains to stick around.
Goldman forecast “a 4% boost of productivity levels relative to trend” — that is, added US productivity growth of 1.3% a year from 2020 to 2022, which would set a permanently higher baseline that allows the economy to grow even faster. It attributed these gains to three broad categories: shifts toward more efficient online retail and e-commerce, efficiencies from businesses cutting down on in-person work, and inefficient businesses going bust and new, more efficient competitors taking their places.
McKinsey’s forecast is similar, adding 1% to productivity growth in the US and six large European countries each year through 2024. It cited the same factors as Goldman, as well as automation, telemedicine, and artificial intelligence.
While the question of whether faster productivity growth sticks around is an open one, there has been something about the past two years — and the quickly changing approaches to work and technology we experienced — that has been clarifying.
Thank God the robots are taking our jobs
For a couple decades now, there’s been a reductive conversation about automation and the job market, as though machines are going to put people out of work and leave them penniless. This was the premise of Andrew Yang’s campaign for the Democratic presidential nomination: The government would need to send people monthly checks because robots were coming to take your job and make it increasingly impossible to make a living by working.
But what you can see in the economy right now — with the combination of strong wage growth, a large number of job openings, rising productivity, and shifts toward automation — is that machines and workers are not just substitutes but also complements.
When machines replace human workers, they make the economy more productive and efficient. Businesses produce more income that can then be paid to employees, who go on to spend their higher paychecks on other products and services, which will be produced by a combination of machines and human workers. Jobs are lost but jobs are also created — and those new jobs are, on average, more productive and support higher wages.
This requires the right mix of policy from the Fed and others to ensure that the gains are simply captured by investors in the form of higher profits, but if things line up with the current economy — with power in the hands of employees and businesses passing along the gains — the productivity boom could be a huge boost for American workers and the economy as a whole.
When restaurant orders are taken by computer, that means serving each customer is less work and each worker can do more service, which makes higher pay possible. When employees work from home two days a week, that’s less demand for transportation services, but it also means fewer hours spent commuting and more time available for some combination of work and leisure. When you can change your airline reservation in the app, that reduces the labor cost to sell an airplane ticket and makes lower prices possible, which means consumers have more money left over to buy other products and services.
These are all positive changes. And my hope is that, as we continue to emerge from the pandemic, and as we continue to shed our labor-intensive business practices, we retain our greater openness to new, better, and more efficient ways of doing business — such as the widespread adoption of autonomous vehicles — recognizing that these changes can benefit all of us, when we are willing to adjust and learn.
The monetary conditions — most importantly, low interest rates — that foster higher wages can also push up prices, and the Fed’s support is one of the factors that has pushed inflation above the central bank’s long-run goal of 2%. Ideally, the further relaxation of pandemic-related restrictions and the easing of the supply-chain disruptions should help inflation cool off, but there are also worries that the price hikes could lead the Fed to increase interest rates and diminish workers’ power.
A key question is whether these factors that push down inflation will come fast enough for the Fed to wait for them.
How much could pandemic innovation boost productivity?
The pandemic-driven productivity boost is a win for not only labor but also the US economy overall. Before the pandemic, productivity growth had been disappointing for decades, with new technologies failing to produce substantial gains. While the early signs are that this time may be different, economists are wary to declare the issue solved.
Productivity growth was robust in the first two quarters of this year: over 4% in the first quarter and more than 2% in the second quarter, which easily outpaced the 1.2% average for the decade after the global financial crisis, according to Bureau of Labor Statistics figures. (In the summer, Heather Long wrote a useful story for The Washington Post about what this could signal for longer-run productivity gains.) But then the third quarter was terrible, with labor productivity falling 5% amid the Delta wave.
Productivity often goes up in times of economic distress because more junior workers and workers in lower-productivity industries are more likely to lose their jobs, which leaves behind a workforce that is smaller but more productive on a per-worker basis. Sometimes, as the labor market returns to normal, those lower-productivity employees are rehired, and productivity growth recedes.
As customers get used to new ways of doing business — such as ordering online and picking up in quick “to-go” lines — productivity gains could stick around even as the economy gets back to “normal.”
El Pollo Loco
Still, this time, analysts at McKinsey and Goldman Sachs are expecting a boost in productivity gains to stick around.
Goldman forecast “a 4% boost of productivity levels relative to trend” — that is, added US productivity growth of 1.3% a year from 2020 to 2022, which would set a permanently higher baseline that allows the economy to grow even faster. It attributed these gains to three broad categories: shifts toward more efficient online retail and e-commerce, efficiencies from businesses cutting down on in-person work, and inefficient businesses going bust and new, more efficient competitors taking their places.
McKinsey’s forecast is similar, adding 1% to productivity growth in the US and six large European countries each year through 2024. It cited the same factors as Goldman, as well as automation, telemedicine, and artificial intelligence.
While the question of whether faster productivity growth sticks around is an open one, there has been something about the past two years — and the quickly changing approaches to work and technology we experienced — that has been clarifying.
Thank God the robots are taking our jobs
For a couple decades now, there’s been a reductive conversation about automation and the job market, as though machines are going to put people out of work and leave them penniless. This was the premise of Andrew Yang’s campaign for the Democratic presidential nomination: The government would need to send people monthly checks because robots were coming to take your job and make it increasingly impossible to make a living by working.
But what you can see in the economy right now — with the combination of strong wage growth, a large number of job openings, rising productivity, and shifts toward automation — is that machines and workers are not just substitutes but also complements.
When machines replace human workers, they make the economy more productive and efficient. Businesses produce more income that can then be paid to employees, who go on to spend their higher paychecks on other products and services, which will be produced by a combination of machines and human workers. Jobs are lost but jobs are also created — and those new jobs are, on average, more productive and support higher wages.
This requires the right mix of policy from the Fed and others to ensure that the gains are simply captured by investors in the form of higher profits, but if things line up with the current economy — with power in the hands of employees and businesses passing along the gains — the productivity boom could be a huge boost for American workers and the economy as a whole.
When restaurant orders are taken by computer, that means serving each customer is less work and each worker can do more service, which makes higher pay possible. When employees work from home two days a week, that’s less demand for transportation services, but it also means fewer hours spent commuting and more time available for some combination of work and leisure. When you can change your airline reservation in the app, that reduces the labor cost to sell an airplane ticket and makes lower prices possible, which means consumers have more money left over to buy other products and services.
These are all positive changes. And my hope is that, as we continue to emerge from the pandemic, and as we continue to shed our labor-intensive business practices, we retain our greater openness to new, better, and more efficient ways of doing business — such as the widespread adoption of autonomous vehicles — recognizing that these changes can benefit all of us, when we are willing to adjust and learn.
Marx and the Machine – non.copyriot.com
2019-09-17 · Marx and the Machine. With the reference to the phylogeny of machines, which ranges from complex tools to machines driven by motors to automatons, Marx always combines a genealogy of technology shaped by capital and thus clearly sets himself apart from a transhistorical theory of the evolution of technology. Marx writes: „Work is organized ...
Marx and the Machine - ZoLAist's Diary
zolaist.org/wiki/images/a/a8/Marx_and_the_Machine.pdf · PDF file
Marx and the Machine. As an aside in a discussion of the status of the concepts of economics, Karl Marx wrote: "The handmill gives you society with the feudal lord; the steam-mill, society with the industrial capitalist.
Whilst the development and application of machinery within the productive process was a revolutionary step forward, Marx begins Chapter 15 of Capital on “Machinery and Large-Scale Industry” by explicitly stating the purpose of the application of such machinery on a capitalist basis: to increase the profits of the capitalists.
www.socialist.net/marx-s-capital-chapters-15-the-machine.htm
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