| ECONOMIC TRENDS By Gene Koretz Productivity: A Retail Link The spread of superstores helped There's little doubt that U.S. productivity is on a roll. Despite the recent recession, output per hour in the nonfarm business sector has continued to forge ahead. Most economic gurus now agree that the productivity gains of the late 1990s reflect a long-term structural improvement, based on investment in information technology and other increases in corporate efficiency. Nevertheless, one little-noticed factor contributing to productivity growth will likely lose steam in coming years. That's the marked movement of workers from the ranks of the self-employed to payroll jobs. Economist Mark Zandi of Economy.com Inc. observes that the self-employed work force has fallen from its 1997 peak of 9.3 million workers to nearly 8.2 million, cutting its share of total employment by a full percentage point, to around 6%. Significantly, declines in self-employment in recent years have almost invariably been accompanied by rises in productivity growth (chart). Much of this trend, suggests Zandi, reflects the failure of mom-and-pop retailers pummeled by the success of national chains. In particular, huge retailers such as Wal-Mart Stores (WMT ), Target (TGT ), and Home Depot (HD ), which benefit from sophisticated inventory and logistics techniques and economies of scale, have been displacing local proprietors around the nation. Nationwide restaurant, video-store, and even homebuilding companies have had similar impacts. The upshot has been both falling self-employment and a surge in retail productivity. According to a McKinsey Global Institute study, retailing was one of six industries that accounted for almost all of the nation's productivity jump in the last half of the 1990s. The decline in small retail outlets has enhanced the productivity numbers in another way. While small owners tend to hide some of their sales to avoid taxes, big national retailers have an incentive to report all sales to impress investors. That tends to boost measured retail output and productivity. Sooner or later, of course, the retailing shift will play itself out. Indeed, with the big boys already in most geographical areas, "the proverbial low-hanging productivity fruit may have already been picked," says Zandi. If the ranks of the self-employed were to stop declining, he figures annual productivity growth could slow by 0.15 percentage point--not a big number, but enough to dim a bit of the New Economy's luster. |
