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http://www.sophiathinkblog.com/technology-its-impact-on-productivity-workplace/
New technology and its impact on productivity in the workplace
Written on August 5, 2010 by Mari Anne Snow
Feeling overwhelmed by the pace of change these days? Not surprising. Were surrounded by technology that
drives our global economy and it is pretty overwhelming as the pace of innovation accelerates. Add smart phones,
netbooks, and iPads which detach us from our desks and keep us permanently connected 24-hours a day, 7-days a
week. Layer on social media and all its associated applications and you have all the conditions for a perfect storm
designed to drown all but the most devoted techies. No wonder so many employers are worried social media will
impact work place productivityits just one more thing to distract people from their assigned duties. But we
think this is a bit too simplistic a conclusion that actually misses an important point.
Technology is a tool, which should ultimately enable, not disable business. We sometimes forget that we can
choose the tools we use. And while no technology is perfect, many really can provide tangible benefits if leveraged
correctly. But when companies adopt technology without a clear strategy; when they dont tie it to business
objectives; when they dont provide adequate user training; when there is no reporting structure; and when user
policies are ill-defined or overly complicated everyone loses. Its true that new technology represents change and
we all know change impacts productivity, but most rational people can adjust if they feel their lives are better for
it.what drives people crazy is anything that makes their lives difficult.
Social media and all its associated applications are simply new tools. They are very powerful. They can help your
achieve higher levels of productive collaboration, greater team/client integration and increased workplace
engagement. They can provide salient, real-time client data; deliver useful business metrics; help you maintain
contact with your network; and ultimate improve your productivity. In addition, if you hire anyone 30 or younger,
you already have employees that can help you achieve business value with the tools because this generation is so
connected they dont understand how to function without social media. So not using their knowledge actually
diminishes their value. However, achieving ROI from any technology is highly unlikely without an operating
model and a business plan.
Devising an operating model consistent with your business needs requires you objectively evaluate your
organization and carefully review:
This has to happen at the highest levels of the organization in order to provide consistency and a unified approach
for everyone. The best operating models are easy to execute, monitor and report upon. They tend to rely heavily
on basic, open-ended principles that require self-restraint on the part of your employees rather than complicated,
dictatorial models that are hard to enforce. They assume self-responsibility on the part of your users. Operating
models with user guidelines and governance policies that are unenforceable or for which compliance requires
Herculean efforts lead to poor operating practice and breakdowns in operational productivity.
Business plans are equally important because they tie the tools directly to work. This is an important concept if a
tool is to enable, it must be tied to a specific business objective so you can measure results. You should be able to
achieve the desired objectives, report on them and directly connect them with tangible business value. If you cant
do this, consider an immediate re-assessment as poor tools can waste precious resources, alienate clients, and
damage productivity over the long-term. Good business plans help you hone your tool selection so you purchase
tools that make it easier for your people to do their work. Good planning, good training, and a common-sense
operating model translate to better return on technology spend and higher over-all employee productivity.
The pace of innovation will not slow anytime soon as the demand for the next shiny new thing fuels ever more
ambitious product development. Rest assured new tools will continue to arrive in the market every day.
Developing a sound process for quickly assessing these tools so you can use them to your business advantage
ensures whatever you spend brings you maximum return rather than wasting everyones time.
http://www.dol.gov/dol/aboutdol/history/reich/reports/grow.htm
Investments in education and training payoff in terms of higher productivity and noninflationary wage growth. In a
previous paper, Sandra Black and Lisa Lynch find that raising the educational level of employees by a year results
in 8-13 percent higher labor productivity. In addition, they find evidence to support the view that employers who
invest in computer training, especially in the non manufacturing sector, have significantly higher productivity then
their competitors.
But investing in human capital is not the only way in which employers can improve productivity. In a new paper
summarized in this report, Black and Lynch find that while simply adopting a Total Quality Management system
does little to improve overall productivity, the use of bench marking, increasing the proportion of workers involved
in discussing workplace issues, and having a union all raise labor productivity in the manufacturing sector. In
addition, they find some managerial employees have higher labor productivity.
Computer technology is generating many well-paid high-skilled jobs and has raised the productivity of many
businesses. Alan Krueger (1993) has found that workers who use commuters in their jobs are paid 15 percent more
than similar workers who do not work with computers. The challenge remains to ensure that more workers are
equipped with the skills that allow them access to these better jobs so that they can enjoy a rising standard of living
and firms can achieve higher productivity growth. In addition, as the August 1996 Monthly Labor Review shows,
information technology has also resulted in job displacement. Therefore, investments in education and training for
incumbent workers, especially for dislocated workers, are critical to minimize the costs of this displacement.
NOTE: The full report is also available in PDF format. In order to view PDF documents you must have a PDF
viewer ( (e.g., Amber or Acrobat Reader) available on your workstation.
Introduction
Productivity in the United States is still the highest of any nation in the world. However, as shown in Figure 1,
average annual productivity growth since 1973, after smoothing for cyclical fluctuations, has remained at a steady
1.1 percent. This is significantly lower than the 2.9 percent average annual growth rate of productivity between
1960 and 1973. Although manufacturing productivity growth has improved recently to 4.2 percent, it remains of
the utmost importance to understand the determinants of productivity growth.
Investments in education and the skills development of workers are a way to ensure higher labor productivity
growth without igniting wage inflation. This report summarizes new research that uses detailed establishment level
data to examine the respective contributions of human capital investments, workplace practices, and computers on
labor productivity.
Workplace Practices and Productivity
While there have been many studies on the impact of capital investments and R&D on firm productivity, there has
been very little direct analysis of the impact of workplace practices on productivity. In addition, while there have
been many studies done of the impact of human capital investments on individuals' wages, much less is known
about the direct effect of human capital on the productivity of specific businesses. In a series of recent papers,
economists Sandra Black and Lisa Lynch examine the link between labor productivity and a variety of workplace
practices, human capital and computers for a representative sample of establishments in both the manufacturing
and non-manufacturing sectors.
Black and Lynch use data from a unique survey called the Educational Quality of the Workforce National
Employers Survey (EQW-NES). The EQW National Employers Survey was administered by the U.S. Bureau of
the Census as a telephone interview in August and September 1994 to a nationally representative sample drawn
from the Census database of private establishments. The survey oversampled establishments in the manufacturing
sector and those with more than 100 employees. Businesses with less than 20 employees, public sector employers,
not-for-profit institutions, and corporate headquarters were excluded from the sample.
In a recently published paper in the American Economic Review, Black and Lynch use data from the EQW-NES to
examine the impact of human capital investments and workplace practices on productivity, controlling for a variety
of factors including the size of the business, age of the business, labor inputs, material inputs, book value of the
capital stock, age of the capital stock, experience of workers, capacity utilization, and industry. They find that:
Increasing the educational level of employees in an establishment by one year raises productivity by as
much as 8.5% in manufacturing plants and almost 13% in non- manufacturing establishments.
Formal training done off-site increases manufacturing productivity.
Training employees in computer skills greatly enhances the productivity of non- manufacturing
establishments.
While this analysis provides new insight into the role of human capital on productivity, it only examined
productivity at a point of time and was unable to control for unobserved characteristics of the employers.
In a study released today entitled, "How to Compete: The Impact of Workplace Practices and Information
Technology on Productivity," Black and Lynch examine a subsample of manufacturing plants from the EQW-NES
that they can match with longitudinal data from the Census Bureau for the period 1987-1993. In this way they are
able to examine the factors that determine a plant's labor productivity over time, controlling for the size of the
capital stock, the use of materials, unobserved characteristics of the plant that do not vary over time, and observed
workplace practices such as the use of computers, human capital investments, the use of high performance work
systems, employee representation, profit sharing, and recruitment strategies. Major findings from this study are
summarized in Figure 2 and include:
Increasing the average educational level of employees within a manufacturing plant by one year would
increase labor productivity by 8 percent, everything else held constant.
Increasing employee voice either through unionization or employee participation in decision making
raises productivity. More specifically, simply adopting a Total Quality Management system has an
insignificant effect on productivity but raising the proportion of workers involved in decision making
within the plant either through regular meetings or unionization has a significant positive impact on labor
productivity. In other words, it is not so much what you say you do, but how you do it that counts.
Those manufacturing plants with profit sharing plans for non-managerial employees had 7 percent higher
labor productivity than their competitors. Although there is a great deal of attention paid to the profit
sharing arrangements of managers and CEOs of companies, this new study indicates that extending
profit sharing to non-managerial workers has a more significant effect on productivity than even profit
sharing plans for managerial employees.
Those employers who had a research and development facility in their firm had on average 6 percent
higher labor productivity.
The use of benchmarking raised labor productivity by 6 percent. Previous work on the effectiveness of
benchmarking has largely focused on the specific experience of certain firms in particular industries.
This analysis shows that what has been found in case studies holds up in a more nationally representative
sample of manufacturing establishments.
Black and Lynch find that raising proportion of nonmanagerial workers using computers (in the
manufacturing sector) from a third to two-thirds would increase labor productivity by 5.4 percent (see
Figure 2).
As mentioned earlier, Black and Lynch find that non-manufacturing firms that provided computer
training to their workers have significantly higher productivity than similar competitors.
In spite of the positive impact of computers on labor productivity, Black and Lynch (1995) find that not
all employers are equally likely to provide computer training to their employees. For example,
establishments with less than 250 employees are much less likely to offer computer training than larger
businesses. Businesses with more educated and experienced workers are more likely to offer computer
training as are those who use high performance work practices such as Total Quality Management
systems or benchmarking.
Conclusions
Investments in education and training payoff in terms of higher productivity and non- inflationary wage growth.
Black and Lynch find that raising the educational level of employees by a year results in 8-13 percent higher labor
productivity. In addition, they find evidence to support the view that employers who invest in computer training,
especially in the non- manufacturing sector, have significantly higher productivity than their competitors.
But investing in human capital is not the only way in which employers can improve productivity. In a new paper
released today, Black and Lynch find that while simply adopting a Total Quality Management system does little to
improve overall productivity, the use of benchmarking, increasing the proportion of workers involved in discussing
workplace issues, and having a union all raise labor productivity in the manufacturing sector. In addition, they find
some evidence that those manufacturing employers who provide profit sharing plans for their non- managerial
employees have higher labor productivity.
Computer technology is generating many well paid high skilled jobs and has raised the productivity of many
businesses. Alan Krueger (1993) has found that workers who use computers in their jobs are paid 15 percent more
than similar workers who do not work with computers. The challenge remains to ensure that more workers are
equipped with the skills that allow them access to these better jobs so that they can enjoy a rising standard of living
and firms can achieve higher productivity growth. In addition, as this month's issue of the Monthly Labor Review
shows, information technology has also resulted in job displacement. Therefore, investments in education and
training for incumbent workers, especially for dislocated workers, are critical to minimize the costs of this
displacement.
reasons why most of our analysis focuses on counts. First, this allows
us to compare results from the 1993 SMT directly to earlier work for
which count data are the only data available. Moreover, experiments
with a number of different measures of technology use find that simple
technology counts provide useful measures of how advanced a plant's
technology is (Dunne, 1994, Dunne and Schmitz, 1994, and Doms, et. al,
1995). In this regard, even though some of the combinations among
technologies show statistically significant relationships with
performance, technology combinations explain minor portions (less than 2
percent) of the observed variations in plant performance in the 1988 SMT
(Beede and Young, 1996).
The SMT surveys also provide several plant variables which are
used in the analysis. In particular they provide qualitative
information on the type of manufacturing process at each plant
(fabrication, machining, and/or assembly). We view the measures based
on this information as a proxy for how integrated is the plant's
production. The SMT data also include the selling price of the
product(s) produced at each plant. Doms, et. al (1995), using the 1988
7
SMT, show that these price classes are positively correlated with
skilled labor in the plant. However, we find a weaker statistical
relationship between these price variables and productivity in the 1993
data.
B. The Longitudinal Research Database
The data for plant characteristics and performance come from the
LRD, which provides longitudinal information on inputs and outputs of
manufacturing plants derived from the quinquennial Census of
Manufacturers and the Annual Survey of Manufacturers (McGuckin and
Pascoe, 1988). The estimates of productivity, capital stock, and labor
skill mix for surveyed plants were developed from the LRDs information
for 1987 and 1992. We use the census years 1987 and 1992, rather than
1988 and 1993, since data from only a subset of SMT manufacturing plants
are available in the LRD for non-census years. Use of the census data
maximizes our sample of observations.
Labor productivity is defined as value added per employee;
similarly, capital intensity is measured by book value of total capital
per employee. Labor skill mix is measured by the ratio of skilled
workers to total employment, where skilled workers are proxied by nonproduction workers. Plant size also is measured by total employment.
Geographic location is in terms of the nine Census regions. Table 2
lists all variable names and definitions used in the empirical models.
Mean values are also reported for the 1988 and 1993 data, as well as the
1988/93 panel. Value added and capital data are deflated with 4-digit
8
SIC output and investment indices from the National Bureau of Economic
Research, Inc. (Bartlesmann and Gray, 1994).
C. Sample
The samples used in particular analyses always consist of the
maximum observations for which all data are available after excluding
imputes, missing and extreme values. The samples available were 6,917
plants from the 1988 SMT and 6,122 from the 1993 SMT. These samples are
representative and accounted roughly for 17.6 percent (1988) and 14.0
percent (1993) of total establishments in the manufacturing universe and
50.1 percent (1988) and 41.3 percent (1993) of total employment.
There were 1,708 plants with complete data in the LRD and both
SMT surveys. While we discuss differences between this panel subsample
and the full samples in more detail below, we note here that the
longitudinal sample is biased toward medium and large plants with higher
advanced technology use rates in both years. The proportions of plants
in the panel subsample using the advanced technologies is higher in the
over 6 class of technology users and lower in the less than 6 category.
As shown in Table 3 -- which provides a comparison of the proportion of
the sample in each technology class for the panel and full sample in
both 1988 and 1993 -- the bias pattern is similar in both years,
suggesting that the change measures may be reflective of the population.
Moreover, as discussed below we are able to replicate the cross-section
estimates found for the full samples in each year with the data from the
panel subsample.
9
D. Empirical Model
The basic empirical model is a traditional fixed effects CobbDouglas production function.
Log(P
it
) =
o
+
1
[Log(K
it
/L
it
)] +
2
TECH
it
+
3
X
it
+
,
for i = 1,...,N,
t = 1,...T.
(1)
The subscript i refers to the plant; t denotes the time
period, and the
i
s are unobserved, fixed plant effects, including
management quality, and
is an error term.
Our TECH variable measures advanced technology in use at the
plant and is an index to account for the quality variation in
capital. It is well known that when estimating the underlying
characteristics of production, accounting correctly for
variations in the quality of capital is critical. We expect a
positive relationship between plant productivity and our
technology variable.
In a similar fashion, the ratio of non-production workers to
total employment proxies for a quality index for labor. Nonproduction workers are often thought to be more highly skilled
3
Although there is significant within group heterogeneity between
production and nonproduction workers, we follow Dunne and Troske (1996),
Doms, et. al (1995), and Dunne, et. al (1996) in assuming the skill
content of nonproduction workers is higher than that for production
workers.
10
than production workers.
3
Adoption and use of advanced
technologies, particularly computer based equipment, requires
skilled labor. Thus, we would expect to find better productivity
performance at plants with more skilled labor
Two econometric problems are of concern in estimating this
model. First, the plant effects (
2
. The TECH parameter
estimates are biased upward due to the likely positive
correlation between technology and the omitted plant effects (
).
In this case, the positive coefficient of
2
may be simply
picking up the fact that 'good' plants are likely to have
advanced technologies, not that technology use improves
productivity. We cannot get consistent estimates of
2
unless we
find instruments that are correlated with the TECH variable, but
uncorrelated with
and
.
In order to eliminate this problem, we estimate the
production function model of equation (1), in first difference
form:
log(P
i
) =
o
+
1
[
Log(K
i
/L
i
)] +
2
(
TECH
i
) +
3
(
X
i
) +
i
, (2)
where
j
= (
j,93
j,88
) for all j.
In principle, equation (2) eliminates the time invariant,
11
unobserved plant effect (
2
because the signal
remaining in the
)
TECH measure may be overwhelmed by the
relatively large measurement errors in capital (Griliches, 1986;
Griliches and Mairesse, 1995); resulting in biased and
inconsistent parameter estimates.
Finally, we note that while our ultimate object is to
examine the direction of causality between productivity growth
and the use of advanced technology, this requires estimation of a
full structural model. Full structural modeling is beyond the
scope of this paper for a variety of reasons, including data
constraints.
With these factors in mind, we estimate equation (1) for two
cross-sections, 1988 and 1993, in section IV. This allows us to
check the robustness and persistence of the relationship between
the use of the advanced technologies and the level of
productivity. Using our panel of plants covered in both the 1988
and 1993 SMT, equation (2) estimation results are reported in
section V. Before turning to this analysis, we discuss the
observed changes in technological use between 1988 and 1993.
12
III. DIFFUSION OF TECHNOLOGIES
In 1993, roughly 75 percent of all manufacturing plants
classified in SICs 34-38 used at least one of the 17 advanced
technologies. This was a modest increase from the 68.4 percent
found in 1988. The number of plants using more than five
advanced technologies also increased, from 23.1 percent in 1988
to 29.1 percent in 1993. Because use rates are much higher for
large then small plants, use rates are much greater if calculated
on a sized weighted basis.
Table 4 shows the percentage of establishments in 1993 using
each of the 17 technologies by the five major SICs covered in the
survey. The prevalence rates of individual technologies varied
widely. Very few of the technologies showed use rates over 50
percent and many, particularly lasers, robots, and automated
material sensors, had use rates less than 10 percent. The most
prevalent technologies are computer aided design and numerically
controlled machine systems. These technologies were identified
by Johnson, et. al (1995) as labor enhancing and they reported
that "labor-enhancing technologies enjoy the greatest adoption
rate." Thus, our results are generally consistent with those for
Canada.
In order to focus on differences in use rates between 1988
and 1993, Table 5 presents the use rates, by technology for 1988.
Comparison of Tables 4 and 5 reveals significant increases in use
rates for some technologies. What is striking about the data is
that use actually declines for a few of the technologies and is
4
For ease of presentation, we report only the parameter estimates
for the capital intensity, labor skill mix, and technology variables.
The full set of parameter estimates is available from the authors.
13
stagnant for others. Computer design and engineering, consisting
of three individual technologies, showed the greatest increases.
Moreover, the increases were observed in each major industry
group. The only other technology that showed large percentage
increases in use rates was local area networks (LAN), most
notably for transfers of technical data.
The data in these tables suggest that new entry is not a
primary vehicle for introducing advanced technologies. Each
major industry group showed positive increases in the number of
establishments operating. Industry 38, with by far the most
substantial increase in plants, showed little difference from
other industries in the change in use rates. This is consistent
with Dunne (1994), who found young and old plants used advanced
technologies at similar frequencies, and also with Baily, et. al
(1991), who found that increases in productivity are associated
with shifts in market share to productive continuing plants, not
entry or exit.
IV. PRODUCTIVITY AND TECHNOLOGY USE