In the whole field of Economic theory, not many concepts have been studied for a longer time than the general idea of labor productivity. As a fundamental part of growth theory since the Solow-Swan model from the 1950’s, labor productivity generally describes the impact of one additional unit of labor on the achieved output of a venture. In the classical model, labor productivity was understood to be augmented by technology, making the laborer more productive. While the state of the art understanding of labor productivity changed, most mentionable through the efforts of Paul Romer and Robert Lucas in the 1980’s by making technological advancements endogenous to their model and adding the concept of human capital, not a whole lot has changed in the common economic understanding of what makes people perform the way they do.
Unfortunately, it turns out that the average human is more than just an initial endowment of human capital with labor augmenting technology attached to it. We are emotional, easily distracted and mostly very, very lazy creatures and just don’t play nicely with the ideals behind the homo oeconomicus.
With that said, I am going to present a recent publication of the World Bank Group on the topic of productivity. Published in its World Development Report of 2015 with the title “Mind, Society and Behavior”, the chapter makes some interesting claims for additional factors that might influence how productive individuals really are.
The main claim the article makes is that besides the labor augmenting effect of technology and the quality of human capital, psychology plays a huge role in how well those initial endowments can be used in performing tasks in a daily working environment. The authors give examples on how a set of cognitive, psychological and social barriers can affect productivity especially in a lower income setting. While differing in their symptoms, the underlying effects described are actually observable in a wide range of scenarios:
In employment, procrastination seems to be an important cause for productivity losses. Studies (and this authors personal experience) suggest that employees are more productive close to deadlines but become less productive with less pressure to perform. Other mentioned hindrances include a missing perception of the importance of one’s occupation, the perception of unfair treatment by one’s employer as well as social effects among coworkers. The authors suggest that actually a lot of those barriers in employment could be overcome by contractual design, e.g commitment enforcing contracts that could lower the negative effects of procrastination.
Even more interesting are the implications of those hurdles in the context of self employed work in small businesses or agriculture. Here, those effects might be even worse due to a lack of external enforcement which leads to a severe difficulty to “translate intention into action”. This thesis finds supporting evidence in an experiment done in Ghana: In the set up, some small business owners got aid in the form of financial support, while others got a comparable worth in equipment useful for their respective businesses. While the productivity of those latter businesses rose sharply, the businesses that got money did not experience any growth. Instead, the money was in most cases used for individual spending or family demands. Other studies suggest similar effects, one found that generally, if business environments become more favorable, small business owners tend to not earn more money but simply work less.
While the effects mentioned so far mostly revolve around the efficient use of human capital, another focus was the use of labor augmenting technology. In the field of agriculture, the article questions why farmers in very poor regions fail to even adopt simple technology in their workflow. As in the case of employees, the authors identify procrastination as one factor that hinders productivity. This effect seems to be especially important in agriculture where timing plays an important role in the usage of fertilizers etc. to have the maximal impact on the harvest. Like in the small business case, the article also finds mismanagement of funds to be a concern. With long delays between sowing and harvest, along comes a delay between effort and reward as well as a delay between the availability of funds after the harvest and an investment opportunity by buying fertilizer or other labor enhancing technology.
All in all, The World Bank article suggests some very interesting aspects of the human nature that might actually hinder productivity. However, especially for the field of development economics this might not be as exciting as it sounds. The article focuses entirely on developing nations when it comes to establishing its barriers for productivity and emphasizes that understanding this effect is crucial especially for development economics. This is only understandable considering the context of the publication, but it begs the question on how those negative influences compare across nations. I can not imagine that effects like procrastination, individual mismanagement or plain and simple laziness are not equally observable in developed countries. While not making the effect irrelevant in this, but rather making it important in a global context and an important addition to general economic growth research, the question arises how relevant those effects are in achieving change in developing nations. In the case that those effects are indeed stronger in developing countries and not just an overall characteristic of mankind, the question of causality arises. Are those new effects really a cause for underdevelopment or much rather new symptoms of old causes like corruption, insufficient education or inequality? Sure, targeting those negative influences by adapting policy might create growth; however, it might not be all that useful for reducing poverty in the long run.
Have we been doing it all wrong so far? Probably not. Would behavioral influences make a neat addition to the standard model? Most definitely. Is it especially important for development economics? Depends.
This Article is based on the chapter “Productivity” from:
World Bank. 2015. World Development Report 2015: Mind, Society, and Behavior. Washington, DC: World Bank. doi: 10.1596/978-1-4648-0342-0. License: Creative Commons Attribution CC BY 3.0 IGO pp.128-140