Aaron Steelman interviews Chad Syverson in Econ Focus (Federal Reserve Bank of Richmond, Second Quarter 2018, pp. 22-27). The interview ranges from broader discussion of slower aggregate productivity growth to comments about productivity in specific industries: health care, car production, ready-made concrete, big box and mom-and-pop retail, major auditing firms, investment choices in Mexico\’s social security system, and others. Here are a few of the many points that caught my eye.
Should we be concerned about artificial intelligence replacing human labor?
\”We have always found things for people to do. If you go back to the middle of the 19th century, more than 60 percent of the workforce was employed in farming. Now it\’s about 2 percent. Well, we figured out something for the rest of us to do. So I don\’t worry about that very much. That said, if I could invent a machine that made everything we consume now and we didn\’t have to work an hour, I would take that. That\’s not a bad thing. It does create a distributional issue. Are you going to give all that output to the person or persons who own the machine? I think we could agree that\’s not a good outcome. So we would have to figure out how to distribute the productivity gains that would arise. But inherently, we shouldn\’t think of it as a problem.\”
Why are productivity differences rising among firms in the same industry?
\”An important fact is that the skewness of everything is increasing within industries. Size skewness, or concentration, is going up. Productivity skewness is going up. And earnings skewness is going up. To describe why our earnings are stretching out like this, why there is a bigger gap between the right tail and the median, I think you have to understand the phenomenon of increasing skewness in productivity and size. Is that technological? Is it policy? Is it a little bit of both? I don\’t think we really know the answer. That said, I think it\’s less of a mystery now than it was when I started working on this many years ago back in graduate school. …
\”The biggest change is the amount of work that has been done on management practice … and there\’s no doubt productivity is correlated with certain kinds of management practices. People have also developed more causal evidence. There have actually been some randomized controlled trials where people intervened in management practices and saw productivity effects. Is that all of the story? No, I don\’t think so. If I had to guess, it\’s probably 15 to 25 percent of the story. There\’s a lot more going on. I think part of it has to do with firm structure. I have done work on that. …
\”But I do think the fact that management is often just mistaken is a nontrivial factor. … Also, I think even if you know you have a problem, a lot of firms can\’t simply say, well, we see this competing company over there has an inventory management tracking system that seems really useful, so we\’ll install it on our computers and our problems will be solved. That\’s not how it works. …
\”An example I talk about in class a lot is when many mainline carriers in the United States tried to copy Southwest and created little carriers offering low-cost service. For instance, United had Ted and Delta had Song. They failed because they copied a few superficial elements of Southwest\’s operations, but there was a lot of underlying stuff that Southwest did differently that they didn\’t replicate. I think that presents a more general lesson: You need a lot of pieces working together to get the benefits, and a lot of companies can\’t manage to do that. It also typically requires you to continue doing what you have been doing while you are changing your capital and people to do things differently. That\’s hard.\”
Is vertical ownership more about data and management than about actual goods?
\”[W]e found that most vertical ownership structures are not about transferring the physical good along the production chain. Let\’s say you are a company that owns a tire factory and a car factory. When you look at instances analogous to that, most of the tires that these companies are making are not going to the parent company\’s own car factory. They are going to other car factories. In fact, when you look at the median pair, there\’s no transfer of goods at all. So the obvious question becomes: Why do we observe all this vertical ownership when it\’s not facilitating the movement of physical goods along a production chain? What we speculated, and then offered some evidence for, was that most of what\’s moving in these ownership links are not tangible products but intangible inputs, such as customer lists, production techniques, or management skills.
\”If that story is right, it suggests a reinterpretation of what vertical integration is usually about in a couple of ways. One, physical goods flow upstream to downstream, but it doesn\’t mean intangibles have to flow in the same direction. Management practices, for instance, could just as easily go from the downstream unit to the upstream unit.
\”The second thing is that vertical expansions may not be as unique as we have thought. They may not be particularly different from horizontal expansions. Horizontal expansions tend to involve firms starting operations in a related market, either geographically or in terms of the goods produced. We\’re saying that also applies to vertical expansion. A firm\’s input supplier is a related business, and the distributor of its product is a related business. So why couldn\’t firms take their capital and say, well, we think we could provide the input or distribute the product just as well too? So, conceptually, it\’s the same thing as horizontal expansion. It\’s just going in a particular direction we call vertical because it\’s along a production chain. But it\’s not about the actual object that\’s moving down the chain.
\”We were able to look at this issue, by the way, because we had Commodity Flow Survey microdata, which were just amazing. It\’s a random sample of shipments from a random sample of establishments in the goods-producing and goods-conveying sectors of the U.S. economy. So, if you make a physical object and send it somewhere, you\’re in the scope of the survey. We get to see, shipment by shipment, what it is, how much it\’s worth, how much it weighs, and where it\’s going. And then we can combine that with the ownership information in the census to know which are internal and which are external.\”
For those who want more, here are links to a few examples of Syverson\’s work published in the Journal of Economic Perspectives, where I labor in the fields as Managing Editor:
- \”Challenges to Mismeasurement Explanations for the US Productivity Slowdown\” (Spring 2017)
- \”The Ongoing Evolution of US Retail: A Format Tug-of-War\” (with Ali Hortaçsu, Fall 2015)
- \”Markets: Ready-Mixed Concrete\” (Winter 2008)