Robots and happy workers: Productivity surge helps explain US economy’s surprising resilience

WASHINGTON — Batesville Tool tries to keep up with customer demand & It started last year by looking for seventy people. It wasn’t easy. Attracting factory workers to a community of 7,300 people in rural Indiana was difficult, especially because it had to compete with major nearby manufacturers such as Honda and Cummins Engine.

Job seekers were scarce.

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

Batesville Tool & It managed to fill only 40 vacancies.

Enter the robots. The company invested in machines that could mimic human workers and in vision systems, which allowed the robots to “see” what they were doing.

The Batesville experience has been repeated numerous times in the United States in recent years. The labor shortage has led many companies to invest in machinery. They have also trained the workers they need to use advanced technology so they can produce more with less.

The result was unexpected productivity growthwhich helps explain a major economic mystery: How has the world’s largest economy remained so healthy? strong growth And low unemploymentDespite brutally high interest rates that are intended to curb inflation, but usually cause a recession?

For economists, strong productivity growth offers an almost magical elixir. When companies roll out more efficient technology, their employees can become more productive: they increase their output per hour. The result is that companies can often increase profits and raise wages without having to raise prices. Inflation can remain under control.

The Fed’s aggressive series of rate hikes – 11 of which began in March 2022 – succeeded in pushing inflation from a four-decade high of 9.1% to 3.1%. But to the surprise of economists who had predicted a recession, higher borrowing costs have caused few economic problems.

Perhaps the most likely explanation is the greater efficiency that companies like Batesville Tool offer & They have succeeded in achieving this. Before productivity started growing again last year, the rule of thumb was that average hourly wages could rise no more than 3.5% annually to keep inflation within the Fed’s 2% target. That would mean that the current average annual wage growth of roughly 4% would have to shrink. Higher productivity means there is now more room to keep wage growth high without fueling inflation.

Productivity growth marks a shift from pre-pandemic years, when annual productivity growth averaged a tepid 1.5%. Everything changed when the economy emerged from the 2020 pandemic recession with unexpected force, and companies struggled to rehire the many workers they had lost.

The resulting labor shortage caused wages to rise. Inflation also soared as factories and ports buckled under the pressure of rising consumer orders.

In desperation, many companies turned to automation. The efficiency gains started coming almost a year ago. Labor productivity increased by 3.6% year-on-year from April to June, by 4.9% from July to September and by 3.2% from October to December.

At Reata Engineering & Machine Works: “Efficiency was more or less forced on us,” says CEO Grady Cope. With the job market buzzing, the Englewood, Colorado-based company couldn’t hire fast enough. Meanwhile, customers began to refrain from paying higher prices.

So Reata installed robots and other technology. Software allowed it to automate the delivery of quotes to customers. Previously, that process took two weeks. Now it can be done within 24 hours.

Many economists and businesspeople say they are hopeful that productivity growth can continue. They note that artificial intelligence is just beginning to penetrate factory floors, warehouses, stores and offices and could accelerate efficiency gains.

Automation raises fears that machines will replace human workers, eliminating jobs. Some workers displaced by robots often struggle to find new work and ultimately settle for lower wages.

Yet history shows that, in the long run, technological improvements actually create more jobs than they destroy. People are needed to build, upgrade, repair and operate advanced machines. Some displaced workers have been trained to get such jobs. And that transition will likely be eased this time by the retirement of the large baby boom generation, causing labor shortages.

Some of today’s productivity gains may come not only from advanced technology, but also from more satisfied employees. Tight labor markets over the past three years have allowed Americans to change jobs and find others that pay better and make them happier and more productive.

Justin Thompson of Kalamazoo, Michigan, felt burned out from his job as a police officer, with its 16-hour workdays. “I literally ran myself into the ground,” he said.

Thompson’s wife saw an opening for operations manager at a charter company. Even without aviation experience, his wife felt he could use the skills he acquired as an infantryman in the Marine Corps – handling the logistics for missions – during tours in Iraq and Afghanistan.

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

Thompson, 43, likes the new job, which allows him to work from home when he’s not traveling. And his maritime experience – including developing ways to improve efficiency – has proven invaluable.

Other workers have moved from low-skilled jobs to jobs that allow them to be more productive.

At Reata Engineering, employees were trained in the use of new advanced equipment.

“The whole point is not to fire people,” says Cope, the CEO of Reata Engineering. “It’s about people doing jobs that are more interesting” – and also pay better.