The productivity of workers in the US dropped 7% in the first quarter of this year which is the largest drop measured in the last 74 years. This metric is the underlying force creating profits in companies and wage increases for workers in our country.
Worker Productivity is defined as the amount of goods and services that the average worker produces in an hour of labor. This is compiled by looking at the hours of regular workers, self-employed workers, and unpaid family workers divided by our Gross Domestic Product.
Productivity shocks are when something changes this ratio drastically. Worker productivity grew steadily in the 1990’s as computers and the internet entered the workforce.
This meant that companies could produce more goods and services leading to increased profits and wages, but it didn’t last forever. After the tech bubble burst, worker productivity evened out.
We were seeing marginal increases in the productivity rate until the pandemic hit. With businesses shut down and supply chains halted, worker productivity plummeted.
The Government and the Federal Reserve Bank expected worker productivity to go back to where it was before the pandemic so they pumped large amounts of money into the economy. The problem is that worker productivity plummeted.
The increased amount of money in the economy stimulated demand, but there were less goods and services being produced given the lack of worker productivity, so what happened? Inflation.
And here we are.
Let me leave you with this.
The 7% drop in the first quarter was followed by a marginal increase to only a 4% drop in the second quarter. Please understand that this Worker Productivity metric is normally measured by fractions of a percentage.
It will normally go up or down .01% in a given quarter. These major shifts spell horrible news for the economy.
If worker productivity doesn’t increase, corporate profits are going to decrease significantly. That coupled with a shortage in the labor market spells bad news for future profits and the investment markets as a whole.
Please take a moment to look at the productivity of your own workers.
If you have quiet quitters or remote workers that aren’t producing, you need to replace them. The old adage that a bad apple will spoil the lot is most certainly true when it comes.to any work force..
Let’s say that you have two people doing the same job; one is busting their chops while the other is doing the minimum necessary to get by. The question becomes how long will the productive worker continue producing?
If you allow the situation to continue, you’ll be put into a position where you have to replace both of them. You can deal with a smaller problem now or a much larger one later.
One of the advantages of having a smaller company is that it’s easier to deal with situations like this. You might only need to replace one or two people, while a larger company wouldn’t even try to handle the problem.
The choice is yours.
We’re all going to get through this. Let’s get through it together.
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