Skills Valuations and the Productivity Factor

Productivity mysteries abound, regarding the applications of knowledge and services in the marketplace. Where does one even begin to sort out the wheat from the chaff? In yesterday's post, I considered the advantages of alternate equilibrium settings (locally coordinated investment in time and non tradable goods) for more directly targeted growth. Productivity matters, and matched time use would provide greater clarity about the resources involved for the creation of new product.

But wouldn't these new services arrangements be inefficient in the beginning? Certainly. Anything at the outset is going to be a long way from optimal capacity! However, matched and coordinated activity over time would become more efficient, not less. Unfortunately, the opposite has often occurred, for indirect compensation of knowledge use.

So why start with a blank slate for time use? Direct compensation for directly matched time would generate a new growth trajectory, for labor input which has gradually been lost from the economy. Only this time, "labor" won't be quite the right term, for the work many would seek to coordinate on individual terms.

By returning time value to the marketplace, renewed aggregate demand would also allow traditional production to regain strength. Even though traditional production gains are associated with less labor, this process can backfire when time is an important part of what customers seek. Often, the time of others is most valued when individuals seek to confirm or augment processes which they already have in motion, to tend to their own needs.

Productivity in terms of knowledge related services is seldom clear, for numerous channels are involved before compensation comes into play. When time use is compensated through indirect means, it's difficult to discern how output and costs relate to the resources which are actually involved. Hence the greater the complexity in this regard, the greater the possibility of a negative supply shock. From a recent article by Warwick McKibben at Brookings, in support of a nominal target (HT Marcus Nunes):

Falling productivity would cause both a rise in input costs and a fall in output. An inflation targeting central bank would tighten monetary policy as input costs rose but in doing so would reduce real GDP in the economy. Thus monetary policy would lead to a worse outcome for the real economy than caused by the shock alone. 

This is already an issue for healthcare costs, which crowd out other choices in knowledge use, and other monies which could contribute to the economy. Would the "crowding out" healthcare effect still be an issue for a nominal target in primary equilibrium? Perhaps, but the costs of healthcare would not limit growth to the same degree. In other words, a nominal target should prove capable of stopping the losses which are still accumulating.

Over time, knowledge use systems could relieve the problematic inefficiencies of indirect time compensation. That in turn would encourage more diverse growth, which had previously been "put on hold" by the growing needs of the healthcare system in particular.

There are differences between applied knowledge use and experiential knowledge use which need to be more closely examined. Granted, some knowledge does not gain its value from directly applied settings. In many instances, knowledge might be considered product insofar as it represents either indirect or personal value. However, experiential knowledge has "uncertain" value. Therefore, when no marketplace exists for time coordination and compensation, experiential knowledge value can be lost - at least in an economic sense.

Experiential product has meaning because it contributes to the value of our time. But in primary equilibrium - where time values are compensated according to merit, skill variance, education and tightly defined "needs",  the marketplace for time and the space for experiential knowledge product are lost. So when productivity is considered within the perspective of time use, alternate equilibrium provides additional pools of knowledge use potential which primary equilibrium is not at liberty to provide or support.

Today's healthcare budgets contribute to monetary crowding out, with knock on effects that add to an ongoing, slow motion negative supply shock. The healthcare dilemma is one of the main reasons why knowledge use systems need to begin their journey as a practical and applied discipline. To some degree this only makes sense, because experiential knowledge and product flourish once central marketplace options have become fully engaged. Once local citizens gain a shared, practical skills base, it becomes easier to branch out into broader educational and experiential settings.

In summary, coordinated time use could "lessen" productivity somewhat, during the initial phase of systems start ups. As the process continues, output and real GDP would eventually begin to grow again. Equal time use allows for practical and applied elements of time arbitrage to come into balance with supposedly "impractical" elements. Productivity is about more than what can be achieved within given institutional settings, for it also involves the gains of populations as a whole.