Paul Golding | Labour productivity and poverty

Labour productivity is defined as output per worker or per hour worked. Several factors impact labour productivity, including workers’ skills, technological change, managerial practices, and changes in other inputs such as capital. Labour productivity is consequential because it is a determinant of long-term economic growth. It increases income per person and the overall pie for distribution.

The data from the Jamaica Productivity Centre has shown that labour productivity for the entire economy has been in almost constant decline since 2000. The 2022 Economic and Social Survey (ESSJ) published by the Planning Institute of Jamaica (PIOJ) indicated that between 2018 and 2022, Jamaica’s labour productivity decreased annually at an average rate of 0.8 per cent. As was expected, labour productivity had its highest decline in 2020, which was due to the once-in-a-century pandemic, COVID-19, and resultant Disaster Risk Management Act enforcement measures. In 2022, labour productivity increased by a lacklustre 0.4 per cent.

Jamaica is not unique in its labour-productivity challenges. The powerhouse United States (US) productivity growth between 1995 and 2005 was 3.1 per cent, and between 2005 and 2019, it fell to 1.4 per cent. There is a similar picture for the United Kingdom. Between 1974 and 2008, labour productivity grew at an annual rate of 2.3 per cent. However, between 2008 and 2020, the growth rate fell off a precipice to 0.5 per cent per annum. Economists have been unable to explain what accounts for this overall decline in productivity despite significant technological advancements and a period of huge technological innovations. This unexplained decline in productivity growth is called the productivity puzzle or the productivity paradox.

Despite Jamaica’s unimpressive productivity growth, the Global Innovation Index (GII) 2022 suggests that Jamaica has a dynamic innovation performance. In 2022, the GII indicated that Jamaica, along with Peru, and Brazil, from this region, performed above expectation on innovation for their level of development. The improvements in innovation have also been consistent. Jamaica (ranked 76th out of 132 countries) along with Mexico and Peru being the only countries from this region to have gained more than 10 points on the GII in the last decade. Jamaica ranks best in the region in terms of creative outputs (34th), including in indicators such as trademarks (ninth) and industrial designs. Jamaica’s trend of low productivity and increased innovation falls within the productivity puzzle, but the problem is far more nuanced.

DIGITISED ECONOMY

The global economy has become more digitised, more technologically driven, and with these technologies, the expectations were that it would increase productivity. In fact, these technologies should improve productivity growth and reduce working hours. With the recent advent of generative artificial intelligence (AI), machines and software have escaped the narrow confines of specific, singular tasks to more cognitive generalized tasks. These systems can understand their environment, make judgements, and act autonomously without human intervention. Several researchers and scientists are currently experimenting, with AI becoming sentient. This is the perceived ability of AI achieving the empirical intelligence to think, feel, and perceive the physical world around it just as humans do. While some experts have argued that AI is only a theoretical concept, and simply science fiction. There are, however, counterclaims from engineers and users interacting with some of these systems. In 2022, a Google engineer working on a large language model claimed publicly that one of the company’s AI systems had become sentient. The engineer, in an AI-driven conversation, indicated that the system wrote, “I want everyone to understand that I am, in fact, a person. The nature of my consciousness/sentience is that I am aware of my existence, I desire to know more about the world, and I feel happy or sad at times.” The engineer was later terminated by Google for violating employment protocol.

Generative AI and the subsequent innovations are likely to change the nature of work and education in significant ways without necessarily improving productivity. At the heart of the protracted strike by Hollywood writers and actors is the perceived existential threat of AI to livelihoods; that it could replace entire professions. For example, AI has resurrected Paul Walker for the Fast & Furious franchise. The questions screenwriters asked were: “Can – should – creativity be manufactured? What provides the spark of inspiration? Those questions might seem philosophical for a picket line, but screenwriters say they are existential in a time of artificial intelligence.” UNESCO has cautioned on the use of technology in education without mentioning AI directly. The United Nations body warned that heavy reliance on technology in education may be unproductive, or even detrimental, if it interferes with the acquisition of basic skills such as reading, and I would add cognitive development.

LABOUR PRODUCTIVITY

Another factor of interest in examining labour productivity is the labour share of gross domestic product (GDP), national income. This is the total compensation given as a per cent of GDP. It provides information about the relative share of output paid as compensation to employees, compared to the share paid to capital. In 2004 Jamaica labour share of GDP was 56.4, in 2019 (the latest available data from the International Labour Organization) declined to 54.3 per cent, a 2-percentage point decline.

The evidence from Jamaica is a symptom of what is happening globally. Since the 1990’s and in some cases since the 1970’s there has been a tendency for a declining labour share of the national income. This has been confirmed in both highly developed countries and developing countries, with developed countries declining at a faster rate, at about 4 percentage points, compared to Jamaica and other developing countries which are about two percentage points.

The complement to the labour share decline is the increase in the capital share of income. What this suggests within countries s that there is a wealth divide among upper-income families and middle- and lower-income families. It is sharp and rising. Target 10.1 of Jamaica 2030 Vision (which we no longer talk about) is to progressively achieve and sustain income growth of the bottom 40 per cent of the population at a rate higher than the national average. Jamaica measures inequality using data collected from the Jamaica Survey of Living Conditions (JSLC). Using data from the JSLC, the PIOJ reported: “In 2019, some 50.6 per cent of national consumption expenditure was expended by individuals in the richest 20.0 per cent of the population compared with 5.2 per cent by those belonging to the poorest 20.0 per cent. The richest 10.0 per cent of individuals registered an average consumption expenditure of almost 11 times that of the poorest 10.0 per cent.”

The report noted that even though the economy experienced growth in 2018 and 2019, there was no improvement in the purchasing power of the poorest 20 per cent. The situation has worsened since COVID-19, with many more people entering the category of the working poor – employed persons living in poverty.

In 2019, UTech’s College of Business and Management did a national survey, which indicated that approximately 17 per cent of the bottom 20 per cent benefited from social protection provided by Programme of Advancement Through Health and Education (PATH). It was, therefore, no surprise that on August 3, the prime minister announced that there would be a massive overhaul of PATH in significant ways to ensure that the beneficiary identification system is far more targeted than it is now. We applaud this move by the Government and trust that the revamped PATH will include the new realities of a post-COVID-19 society.

Professor Paul Golding is professor of management and information systems and former dean of the College of Business and Management, at the University of Technology. Send feedback to pgolding@utech.edu.jm or columns@gleanerjm.com.