A nation’s mix of sectors largely determines its overall productivity and prosperity levels
And some sectors are much more productive than others
For example, the UK has some highly productive sectors such as manufacturing which are continually improving their (labour) productivity levels by investing in latest technology such as robotics, automation, IoTand AI
Japan is also a good example of this
The problem is, once these high-productivity sectors really get going, their workers rightly seek a share in the winnings they’ve helped produce via higher wages and enhanced employment benefits – however, there comes a point when employment costs become so high that management are forced to consider labour-substitute possibilities
Some then outplace labour, including skilled labour, and they have to find another job or join the ranks of the unemployed – if they do find another job, it’s more often than not in less productive service sectors where skills needed are less and there’s a plentiful supply of labour willing to work for much less pay
The result is many of the outplaced, especially the relatively skilled, that do find another job are often underemployed and/ or underpaid versus before – this breeds job dissatisfaction and attitudes which lower overall corporate morale – it also widens pay gaps and increases national feelings of inequality
Indeed, much of the productivity puzzle currently afflicting most developed nations is caused by this growth of employment in low productivity sectors
It’s these service sectors that have done least with the productivity-improving technology now on offer to them, much because of the relatively cheap labour available to them
And this is despite all-time low interest rates and plenty of investment capital being available to them
The fact is that, whilst plentiful cheap labour continues to be available to many service sectors, wages can be kept low putting a brake on overall consumer demand
And this ensures national productivity growth will remain tepid
It’s a vicious circle indeed!