How Much Does Productivity Matter?

Today I had a discussion with +David Correia and the topic of "jobs moving overseas" came up. It was a simple discussion about how sending jobs overseas is killing America. While this will not be anywhere near an exhaustive article on the subject, that is a topic frequently discussed and not as ominous as might seem. This is also one that is pervasive in the minds of the public, I believe primarily because politicians believe it to be a winning notion to put forth.  While I am not an economist I will tackle an aspect of this that is generally not discussed and has great bearing to what extent it happens and will go on into the future. 

First some jobs are moving over seas, to build things we used to produce here. That is true but we ourselves are also producing things and exporting them as well. As a matter of fact US exports have doubled in 10 years. So we are still producing stuff the rest of the world wants, and one has to believe that we get more by exporting it than consuming it locally. The reverse also must be true, it is cheaper to let others produce it and import it rather than produce them domestically. This is just common sense. On the other hand imports have also risen over the last 10 years, though at a slower rate. The gap according to the numbers from January 2003 till January 2013 shows are narrowing over time. The problem is that both the staring point and end point for imports are much higher, so the absolute difference has still risen from 400 billion to 600 billion. 

While the number don't lie, there is still another story to be told. Low labor prices are not the only cost that matter to a company, usually the stated cause. But what is often over looked is the productivity of that labor. One real world example of this I ran across while researching another topic I also enjoy, gardening. Here is a great example of how much productivity can matter. Spain produces 8 million tons of Olives per year but only a little over 38 tons per HA. In the US we produce only 172,000 tons but produce 129 tons per HA

If the economics continue to hold for a period of time, I would imagine US production to continue to grow in market share over time. Or at least grow faster than the overall demand for olives. Exports should drop if consumption were to stay the same. US production would supplant the previous imports. The only thing probably holding back this trend from accelerating is finding the good land and the large initial cost of set up. But you can bet the existing US producers are looking far and wide to find land suitable for olive growing to exploit the productivity advantage they currently enjoy. Spain & Italy, the largest producers, already been growing olives for a very long time and have probably had the land paid off generations ago and can afford to be much less productive because the cost of capital is next to zero for them.

While the amount of acreage dedicated to olive growing in the US has held firm for almost 40 years, the amount produced per acre has skyrocketed from five thousand tons to seventy one thousand tons. The value has also risen by more than ten times, with the 2011 crop being worth over fifty one million dollars.  Anecdotal evidence here in Florida tells of a growing group of farmers starting olive groves, with many already in production.

This can and does work for all industries. The productivity of the labor can matter more than the cost of the labor. So the US can be the largest export nation again, and more importantly, significantly decrease our trade deficit over time. The biggest driver of that should be focused on productivity growth and not inflating the currency to drive down the relative cost of labor. That in the long run will make us poorer not richer.