Jamaica Gleaner

Robots and happy workers

Productivi­ty surge helps explain US economy’s surprising resilience

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TRYING TO keep up with customer demand, Batesville Tool & Die began seeking 70 people to hire last year. It wasn’t easy. Attracting factory workers to a community of 7,300 in the Indiana countrysid­e was a tough sell, especially having to compete with big-name manufactur­ers nearby like Honda and Cummins Engine.

Job seekers were scarce.

“You could count on one hand how many people in the town were unemployed,” said Jody Fledderman, the CEO. “It was just crazy.’’

Batesville Tool & Die managed to fill just 40 of its vacancies.

Enter the robots. The company invested in machines that could mimic human workers and in vision systems, which helped its robots ‘see’ what they were doing.

The Batesville experience and others like it have been replicated countlessl­y across the United States (US) for the past couple of years. Chronic worker shortages have led many companies to invest in machines to do some of the work they can’t find people to do. They’ve also been training the workers they do have to use advanced technology, so they can produce more with less.

The result has been an unexpected productivi­ty boom, which helps explain a great economic mystery: How has the world’s largest economy managed to remain so healthy, with brisk growth and low unemployme­nt, despite brutally high interest rates that are intended to tame inflation but that typically cause a recession?

To economists, strong productivi­ty growth provides an almost magical elixir. When companies roll out more efficient machines or technology, their workers can become more productive: They increase their output per hour. A result is that companies can often boost their profits and raise their employees’ pay without having to jack up prices. Inflation can remain in check.

Austan Goolsbee, president of the Federal Reserve Bank of Chicago, has likened surging productivi­ty to “magic beanstalk beans for the economy. ... You can have faster income increases, faster wage growth, faster GDP without generating inflation’’.

Joe Brusuelas, chief economist at the tax and consulting firm RSM, said, “The last time we saw anything like this was the late 1990s.”

That was when a productivi­ty surge – an early payoff from the sudden embrace of laptops, cell phones and the Internet – helped allow the Federal Reserve to keep borrowing rates low because inflation remained under control, even as the economy and the job market sizzled.

This time, the Fed’s aggressive streak of rate hikes – 11 of them starting in March 2022 – has managed to help cool inflation from a four-decade high of 9.1 per cent to 3.1 per cent, while causing little economic hardship.

“I would have said it’s not possible,’’ said Sal Guatieri, senior economist at BMO Capital Markets. “But that’s exactly what happened.’’

A year ago, nearly every economist was warning that a recession was all but inevitable. Fed Chair Jerome Powell himself warned in 2022 that beating inflation would inflict “some pain” in the form of widespread

lay-offs and higher unemployme­nt.

By last month, Powell was sounding a different note. With unemployme­nt barely above a half-century low, the Fed chair told reporters, “We’ve had a very strong labour market, and we’ve had inflation coming down.”

He did caution that the central bank wants to see further progress in slowing inflation. Yet the Fed is so optimistic that inflation is heading towards its two per cent goal that it hasn’t raised rates since July, and is expected to cut rates multiple times this year.

Perhaps the likeliest explanatio­n is the greater efficienci­es that companies like Batesville Tool & Die have managed to achieve in the past year or so. Before productivi­ty began its resurgent growth last year, a rule of thumb was that average hourly pay could rise no more than 3.5 per cent annually for inflation to stay within the Fed’s two per cent target. That would mean that today’s roughly four per cent average annual pay growth would have to shrink. Yet higher productivi­ty has changed that equation: There’s now more leeway for wage growth to stay elevated without igniting inflation.

“A lot of that pressure on business finances – that normally causes them to raise prices – has been offset by strong productivi­ty growth,’’ Guatieri said.

At a news conference this month, Powell was asked whether he believed higher productivi­ty helps explain why the economy has kept growing steadily even while inflation has tumbled.

“That’s one way to look at it – yeah,” Powell replied.

The productivi­ty boom marks a sharp shift from the pre-pandemic years, when annual productivi­ty growth averaged around a tepid 1.5 per cent, according to RSM’s calculatio­ns. Everything changed as the economy rocketed out of the 2020 pandemic recession with unexpected vigour, and businesses struggled to rehire the many workers they had shed.

The resulting worker shortage sent wages surging. Inflation jumped, too, as factories and ports buckled under the strain of rising consumer orders. Parts shortages arose.

Desperate, many companies turned to automation. Investment in equipment and in research and developmen­t and other forms of intellectu­al property accelerate­d. The efficiency pay-off began to arrive almost a year ago. Labour productivi­ty rose at a 3.6 per cent annual pace from last April through to June, 4.9 per cent from July through to September, and 3.2 per cent from October through to December.

At Reata Engineerin­g & Machine Works, “efficiency was kind of forced on us’,’ CEO Grady Cope said. With the job market roaring, the company, based in Englewood, Colorado, couldn’t hire fast enough. Meantime, its customers were starting to balk at paying higher prices.

More with less

So Reata installed robots and other technology to produce more with less. Software allowed it to automate the delivery of price quotes to customers. That process used to require two weeks. Now, it can be done in 24 hours.

Many economists and business people say they’re hopeful, if not certain, that the productivi­ty boom can continue. Artificial intelligen­ce (AI), they note, is only beginning to penetrate factory floors, warehouses, stores and offices.

“Right now, AI is not a critical enabler for us; it’s an assistant and accelerato­r in certain roles,’’ said Peter Doyle, CEO of Hirsh Precision, which makes parts for the aerospace and medical device industries. “The world is still trying to understand what AI is capable of doing and how quickly it will advance.’’

The early evidence suggests that AI could sustain the productivi­ty gains. A study last year by Erik Brynjolfss­on of Stanford University and Danielle Li and Lindsey Raymond of the Massachuse­tts Institute of Technology tracked 5,200 customer-support agents at a Fortune 500 company who used a generative AI-based assistant in 2020 and 2021. The AI tool provided suggestion­s for dealing with customers and links to useful internal documents.

Those using the chatbot were found to be 14 per cent more productive than colleagues who didn’t use the tool. They handled more calls and completed them faster. The biggest gains in productivi­ty – 34 per cent – came from the least experience­d, least skilled workers.

Automation tends to raise fears that machines will replace human workers and thereby kill jobs. Some workers supplanted by robots do often struggle to find new work and end up settling for lower pay.

Yet history suggests that in the long run, technologi­cal improvemen­ts actually create more jobs than they destroy. People are needed to build, upgrade, repair and operate sophistica­ted machines. Some displaced workers are trained to shift into such jobs. And that transition is likely to be eased this time by the retirement of the vast baby boom generation, which is causing labour shortages.

Some of today’s productivi­ty gains may be coming not just from advanced technology, but also from more satisfied workers. The tight labour markets of the past three years allowed Americans to change jobs and find others that pay better and make them happier and more productive.

One of them was Justin Thompson, of Kalamazoo, Michigan, who had felt burned out by his job as a police officer, with its 16-hour workdays.

“I was literally running myself into the ground,’’ he said.

Thompson’s wife saw a job posting for operations manager at a charter airline. Even without airline experience, his wife felt he could use skills he gained as a Marine Corps infantryma­n – handling logistics for missions – during tours in Iraq and Afghanista­n.

She was right. Omni Air Internatio­nal hired him in 2019.

Thompson, 43, said he loves the new job, which allows him to work from home when he’s not travelling. And his Marine experience – which included developing ways to improve efficiency – has proved invaluable. Technology helps, too: Thompson travels with a laptop, iPad and mobile printer, and uses proprietar­y software to manage logistics.

Other workers have switched from low-skill jobs to those that pay better and are more productive.

“The people who were rolling tacos on December 31, 2019 ... yeah, they’ve moved up,’’ RSM’s Brusuelas said. “They’re doing other things and making a lot more money.”

At Reata Engineerin­g, staffers were trained to use new sophistica­ted equipment. One 19-year-old employee, a university engineerin­g student, has used AI tools to make company training materials less cumbersome and time-consuming.

“The whole point is not to lay people off,’’ said Cope, the CEO of Reata Engineerin­g. “The point is to make people do jobs that are more interestin­g’’ – and pay better, too.

 ?? AP Photos ?? A Halter robot collects a finished piece for blood pressure pumps from a Mazak Integrex at Reata Engineerin­g and Machine Works on Thursday, February 15, in Englewood, Colorado. Reata, which supplies the aviation and medical device industries, has invested heavily in software that automates its manufactur­ing processes. It’s also been training workers to use more sophistica­ted equipment.
AP Photos A Halter robot collects a finished piece for blood pressure pumps from a Mazak Integrex at Reata Engineerin­g and Machine Works on Thursday, February 15, in Englewood, Colorado. Reata, which supplies the aviation and medical device industries, has invested heavily in software that automates its manufactur­ing processes. It’s also been training workers to use more sophistica­ted equipment.
 ?? ?? A worker at Reata Engineerin­g and Machine Works programmes a Mazak Variaxis machine used to make semiconduc­tor pieces on Thursday, February 15, in Englewood, Colorado. Reata, which supplies the aviation and medical device industries, has invested heavily in software that automates its manufactur­ing processes.
A worker at Reata Engineerin­g and Machine Works programmes a Mazak Variaxis machine used to make semiconduc­tor pieces on Thursday, February 15, in Englewood, Colorado. Reata, which supplies the aviation and medical device industries, has invested heavily in software that automates its manufactur­ing processes.

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