The Paradox of Worker Productivity, Part I

 In my recent review of the book “Abundance”, I wrote, “…government should help to improve [workers’] productivity and value to employers.”  Implicit in my thinking was that if workers became more productive, companies would hire more workers and pay them more.  A day or two later, I realized that my own career history completely contradicted that idea.

I worked for 26 years for a large corporation.  I spent about 15 years in middle management supervising professional-level employees.  Around 1990, I attended a company-wide managers’ meeting.  At that meeting, the VP of Human Resources gave a presentation laying out his vision of the future company.  At the time, the company employed about 3000 professional employees.  The HR manager said that thanks to productivity improvements, the company could be run with fewer employees and maintain the same level of production.  He said, within the decade, he expected that the company would reduce professional head-count by 2/3, to 1000 professionals.  And he added a stretch goal of reducing head-count to 300.

Employees are expensive.  Employees require salary and office space.  Employees require benefits.  Thanks to union negotiators, my company provided excellent benefits, including a pension plan, matching 401k plus excellent health insurance, which was guaranteed after retirement until age 65.  For the company, employees involve potential liability for injuries and occupational discrimination or sexual harassment lawsuits.  If an employee can be replaced by a widget, there will be potential cost savings, and my company took that as a guiding principle for four decades.  

Throughout my career, technology increased employee productivity.  Rather than creating the opportunity for more value by adding employees, technology simply meant the company could be run with fewer employees.  A manager with a PC no longer needed a secretary.  A geologist with a workstation replaced three geologists using drafting tables.  Information specialists were replaced by computer systems.  Workstations produced presentation-quality documents, so draftsmen and reprographics specialists were no longer needed.  Accountants were replaced by enterprise-wide software.  As people were replaced across the entire industry, they competed for the diminishing jobs and could be paid less.  Or at least, paid no more than before.

The same story was repeated across the whole corporate economy since 1980.  Technology means that businesses can be run with fewer employees, and fewer employees mean lower costs.  

So that is the paradox of productivity.  Technology and capital make employees more productive, but create a surplus of available employees.  Rather than creating more jobs and higher compensation, technology means lower employment and lower pay. 

The preceding paragraphs describe the American economy from 1980 to 2025.  Statistics show that employment increased at a compounded rate of 1.2% per year from 1960 – 2024, while real GDP increased at a compounded rate of 2.5%.  As noted in my blog post on “Abundance”, employee earnings have stagnated over the same period.

Conclusion
In my economics classes, it was a truism that new technologies always create new jobs as it destroys old ones.  This was the pattern of the industrial revolution and the automobile revolution.  Economist Joseph Schumpeter gave it a name: creative destruction.  But there’s no reason why this should always be so.  It’s simply an empirical observation.  Empiricism is always limited to prior experience and is not necessarily true in future circumstances.  In any event, the new jobs may not appear in a timely fashion, and workers whose jobs are eliminated may be unable to be trained for the new jobs.  

The human cost of technological disruption is real.  As a corporate manager, I survived a dozen rounds of layoffs myself, and was forced to lay off friends and long-time colleagues on more than one occasion.  

New technology enables higher worker productivity.   The paradox of higher worker productivity is that as individual workers become more valuable to the company, corporate profits rise, but workers suffer job losses and lower pay.  

Book Review: The Nazi and the Psychiatrist", by Jack El-Hai

 I have another book recommendation, for those who would take on a dark and serious non-fiction work.  The book is “The Nazi and the Psychiatrist”, and I know the author, Jack El-Hai.  Jack is a fellow Carleton alum and an acquaintance from an adjacent class year.  Jack’s book is a masterpiece of scholarship and taut writing.  From the 2nd paragraph, Jack makes it clear that he is writing a book in the non-fiction horror genre.  By the end, I’d say it was more in the vein of a Greek tragedy. 

The book is the story of psychiatrist Douglas Kelley, who was assigned to appraise the Nazi leaders imprisoned for trial at Nuremberg.  Kelley spent months evaluating and getting to know the war criminals, particularly Hermann Göring, de facto leader of Germany after Hitler’s death.   Kelley added a personal goal to the evaluations – to understand the Nazi mind, with the idea of preventing such people from ever holding power again.  Kelley’s conclusion was that although these particular men all showed neuroses and idiosyncrasies, there was no general “Nazi mind”.  Kelley thought that people like the Nuremberg defendants exist in every walk of life, and he concluded that it could all happen again here, in America.  (The term “psychopath” was not coined until after Nuremberg, but Kelley later used the word to describe the Nuremberg defendants.)  
 

A psychologist, Gustave Gilbert, was also assigned to evaluate the prisoners at Nuremberg.  Gilbert, trained in social psychology, not psychiatry, was fluent in German and Jewish.  Gilbert assisted Kelley by providing translation during examinations, and also conducted personality evaluations independently.  Gilbert disagreed with Kelley’s conclusions about the “Nazi mind”, finding that the defendants shared a narrow personality profile, showing pathological self-interest, lack of regard for external standards of behavior, lack of capacity to  feel guilt or concern for the suffering of others.  The dispute with Gilbert continued throughout their professional lives. Modern psychological reviews have concluded that they were both right.  The Nazi defendants were psychopaths, as Gilbert asserted.  And such psychopaths are found today in every walk of life, as Kelley asserted.

Kelley’s story is a Greek tragedy because his arrogance and hubris were the source of his downfall.  Kelley had a monumental ego, and it shaped every facet of his life, before and after Nuremberg.  The rapport that Kelley found with Göring was perhaps founded on the similarity of that aspect of personality.  This is not to say that the men were alike in any other way – Kelley had a well-developed moral sense, and Göring none at all.  But Kelley had a “big man” self-image, not unlike many men of his era.  Kelley imagined himself tougher than other men, which gave him a penchant for exploits and personal experiments that were unquestionably unwise.  Like other egoists, he thought he could “handle it”.  It’s my notion that Kelley’s personal experimentation with a variety of “truth serums” and his decision to undergo a long-period experiment in oxygen deprivation may have contributed to his issues with mental health later in life.  It’s well-known that people who suffer chronic brain trauma or dementia are prone to the kind of behavioral disorders that Kelley exhibited about a decade after the war.  For whatever reason, in the final chapter of his life and the final chapter of Jack’s book, Kelley’s behavior became erratic and aggressive.   Kelley ultimately took his own life, using the same poison as Göring.

A movie, “Nuremberg” was made from Jack’s book, and released in November of last year.
Jack wrote his book in 2013, well before our current political situation developed.  But it’s impossible to read the book without thinking about comparisons between the figures in the Nuremberg cells and some of our political leaders today.  

By the way, if you look to buy the book, be advised there is a copy-cat book published in 2025 with the title “The Psychologist and the Monster”, also about Kelley and Göring.  Make sure you buy the right book.

The cover art represents a Rorschach ink-blot over the photos of Kelley and Göring.