106. The Productivity Fallacy

The problem with employee productivity

Did you know that employee productivity in America has nearly been going in reverse for the past 15 years?

It’s true.
Stick with me on this one.

As far as the government is concerned, “employee productivity” is basically the amount of revenue an average person represents by doing an hour of work. To say this in 5th grade math language:

As an example, I’ve got a friend who has a rapidly growing business that generated $16m in revenue last year. There are only 8 employees at this company, which means each person represents $2m of revenue/year (16 divided by 8). Assuming they each work 2,000 hours every year, that means each employee represents $1,000 in productivity.

Again, going back to the equation above:

Incidentally, the US average for productivity is ~$58/employee. So, yeah, my friend’s metric of $1,000 per person is 1,624% above average, which is pretty darn good. Yay him.

As it turns out, the average growth in US productivity has been 2.1% per year pretty much since the end of World War II. That is to say, if one of your employee generates $100 of revenue per hour this year, they will, on average, generate $102 of revenue per hour next year.

Get it? Good.

After a solid 70-ish years of consistent increases in employee productivity, the balloon deflated 15 years ago.

<insert the pfffffflllllfffftttt sound of a balloon deflating>

If you remove the two years of recession recovery in 2009-2010, our productivity growth has been <1% per year.

Don’t believe me? I wouldn’t either, so here’s a government chart:

There are a variety of theories as to why productivity has slowed down. My favorite is that the Millennials are now in the workforce and, heck, they’re just not a productive group of hooligans (yes, i’m talking about you…. you know who you are).

But, snake people aside, I’m actually not writing this to talk about the economics of US productivity. I’m writing this to talk about being human.

Peak Productivity

A productivity number can only say so much. Here’s the thing that isn’t often talked about in the same sentence as our crappy productivity growth: the US economy is actually growing at over 2% per year during the same exact time that our productivity tanked.

So revenue is growing twice as fast as employee productivity. I’m not going to get into the micro- reasons for this, nor am I going to share another boring government chart. What I am going to talk about, however, is a macro view.

As most of us recognize, there are only 24 hours in a day and, contrary to whatever the Beatles claimed, there are only 7 days in a week.

We are human and, as such, we have two inherent constraints:

• Time

• Ability

One can only work up to their ability within any given period of time.

And therein, my friend, is where the problem lies. Because if the expectation is that we need to grow productivity year after year after year for hundreds of years, well…. at some point people will have tapped out in their ability to perform. This amp doesn’t go to 11. Once people reach their limit, it just isn’t humanly possible to work harder and be more productive.

What I’m saying here is that the entire system is flawed.

The American Dream Is Woke

We live in a capitalist society that rewards excess and access over sufficiency and complacency. The American Dream is about being bigger, richer and better.

According to this so-called American Dream, the way to fulfill it is to work hard. Really hard. I’m talking ignore-your-loved-ones type of hard. Like whatever you’re doing is wrong, you need to work harder until you get to the finish line

Oh, and there’s no finish line.

None of that, however, equates to true happiness.

In our youth, we spend our time trying to create wealth. As we get older, we spend our wealth trying to create time.

The most valuable commodity is not labor productivity. It’s not human capital. It’s human happiness.

Human happiness can’t be quantified on a scale of yearly productivity. It can’t be defined on ones level of excess. The traditional concept of the American Dream is outdated.

IMHO, I believe we will see meaningful increases in productivity over the coming years. Not because humans will work harder, or that we’ll work longer. We won’t. I actually think we’ll begin to work less. I believe we will not just work smarter, but we will live smarter.

When we the people find harmony and happiness in our surroundings, it breeds productivity. There are some very clear examples of this, none of which I’m going to talk about right now but, trust me, it’s a-comin’ soon.

As for now, I have to stop working so I can go have dinner with my family and hear what type of nonsense my daughter instigated today.