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WASHINGTON (AP) — Trying to meet customer demand, Batesville Tool & Die began hiring 70 people last year. it was not easy. Attracting factory workers to the community of 7,300 people in rural Indiana was a difficult task, especially competing with big-name manufacturers like Honda and Cummins Engines.
There were less job seekers.
CEO Jody Flederman said, “You could count on one hand how many people were unemployed in the city.” “It was absolutely crazy.”
Batesville Tool & Die was successful in filling only 40 of its vacancies.
Enter the robot. The company invested in machines that could mimic human workers and in vision systems that helped its robots “see” what they were doing.
The Batesville experience and others like it have been replicated countless times across the United States over the years. Due to the ongoing labor shortage, many companies have had to invest in machines to perform certain tasks that they cannot find people to do. They are also training their employees to use advanced technology so that they can produce more at less cost.
the result was unexpected productivity boomWhich helps explain a great economic mystery: how the world’s largest economy has managed to stay so healthy. explosive growth And low unemploymentIn-spite of this extremely high interest rates Its purpose is to control inflation but it usually leads to recession?
For economists, strong productivity growth provides an almost magical elixir. When companies introduce more efficient machines or technology, their workers can become more productive: they increase their output per hour. The result is that companies can often increase their profits and raise their employees’ wages without raising prices. Inflation can remain under control.
Federal Reserve Bank of Chicago President Austin Goolsby has compared rising productivity to “magic beanstalk beans for the economy.” …You can have faster income growth, faster wage growth, faster GDP without creating inflation.”
“The last time we saw something like this was in the late 1990s,” said Joe Brusuelas, chief economist at tax and consulting firm RSM.
That’s when productivity gains — early gains from the sudden embrace of laptops, cellphones and the Internet — helped the Federal Reserve keep lending rates low as inflation remained under control despite a downturn in the economy and job market.
This time, the Fed’s aggressive series of rate hikes – 11 of them beginning in March 2022 – has managed to help reduce inflation from a four-decade high of 9.1% to 3.1% while causing little economic hardship.
“I would have said it was impossible,” 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 almost inevitable. Fed Chairman Jerome Powell himself warned that inflation will be defeated in 2022 cause “a little pain” In the form of widespread layoffs and high unemployment.
As of last month, Powell was striking a different tune. With unemployment slightly above a half-century low, the Fed chair told reporters, “We have a very strong labor market, and we have inflation coming down.”
He cautioned that the central bank wants to see further progress in reducing inflation. Yet the Fed is so optimistic that inflation is moving toward its 2% target that it has not raised rates since July and is expected to cut rates several times this year.
Perhaps the most likely explanation is the greater efficiencies that companies like Batesville Tool & Die have managed to acquire over the past year. Before productivity started rising again last year, the rule of thumb was that average hourly wages couldn’t rise more than 3.5% a year to keep inflation within the Fed’s 2% target. This would mean reducing today’s average annual wage growth of about 4%. Yet higher productivity has changed that equation: There is now more scope to keep wage growth at a high level without increasing inflation.
“A lot of the pressure on business finances – which would normally cause 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 continues to grow despite declining inflation.
“That’s one way to look at it – yes,” Powell replied.
According to RSM calculations, the productivity jump marks a sharp turnaround from pre-pandemic years, when annual productivity growth averaged around 1.5%. Everything changed as the economy emerged from the 2020 pandemic recession with unexpected strength, and businesses struggled to re-hire many of the workers they laid off.
As a result wages increased due to labor shortage. Inflation also surged as factories and ports buckled under the pressure of rising consumer orders. There was a shortage of parts.
In frustration, many companies turned to automation. Investment in equipment and research and development and other forms of intellectual property accelerated. Efficiency payments started arriving about a year ago. Labor productivity grew at a 3.6% annual pace last April to June, 4.9% from July to September and 3.2% from October to December.
At Rita Engineering & Machine Works, “efficiency was kind of imposed on us,” said CEO Grady Cope. With the job market roaring, the company, based in Englewood, Colorado, couldn’t hire fast enough. Meanwhile, its customers were becoming reluctant to pay the higher prices.
So Rita installed robots and other technologies to produce more at less cost. The software allowed it to automate the delivery of price quotes to customers. That process took two weeks. Now, this can be done in 24 hours.
Many economists and business people say they are hopeful, if not certain, that the productivity boom could continue. He says artificial intelligence is just beginning to enter factories, warehouses, shops and offices.
“At the moment, AI is not a key enabler for us; It’s an enabler and accelerator in some roles,” said Peter Doyle, CEO of Hirsch Precision, which makes parts for the aerospace and medical device industries. “The world is still trying to understand what AI is capable of and how fast it will advance.”
Early evidence suggests that AI can sustain productivity gains. A study conducted last year by Eric Brynjolfsson of Stanford University and Danielle Lee and Lindsey Raymond of the Massachusetts Institute of Technology tracked 5,200 customer-support agents at a Fortune 500 company who used generative AI-based assistants in 2020 and 2021. did. The AI tool provided tips for dealing with customers and links to useful internal documents.
Those using chatbots were found to be 14% more productive than colleagues who did not use the tool. They handled more calls and completed them faster. The largest gains in productivity – 34% – came from less-experienced, less-skilled workers.
Automation raises the fear that machines will replace human workers and thus eliminate jobs. Some workers replaced by robots often struggle to find new work and end up settling 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 state-of-the-art machines. Some displaced workers are trained to move into such jobs. And this time the retirement of the huge baby boom generation is likely to ease that transition, which is causing a labor shortage.
Some of today’s productivity gains are coming not only from improved technology but also from more satisfied workers. The tight labor markets of the past three years have allowed Americans to change jobs and find other jobs that pay better and make them happier and more productive.
One of them was Justin Thompson of Kalamazoo, Michigan, who was feeling burned out from his 16-hour workday job as a police officer.
“I was literally running myself into the ground,” he said.
Thompson’s wife saw a job posting for an operations manager position at a charter airline. Even without airline experience, his wife felt he could use the skills he had acquired 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 likes the new job, which allows him to work from home when not traveling. And his maritime experience – which included developing ways to improve efficiency – has proved invaluable. Technology also helps: Thompson travels with a laptop, iPad and mobile printer and uses proprietary software to manage logistics.
Other workers have moved from low-skilled jobs to better-paying and more productive jobs.
“The people who were making tacos on Dec. 31, 2019…yes, they’ve moved on,” RSM’s Brusuelas said. “They’re doing other things and making a lot more money.”
At Rita Engineering, employees were trained to use new sophisticated equipment. A 19-year-old employee, who is a university engineering student, has used AI tools to make the company’s training materials less cumbersome and time-consuming.
“The whole point is not to fire people,” said Cope, CEO of Rita Engineering. “The point is to get people to do jobs that are more interesting” – and also better paying. Do it.
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