Charles Brecher of the Citizens Budget Commission, in a New York Times essay, called on the MTA to enact productivity initiatives equal to the 2.5 percent average annual productivity gains achieved in the private sector, in order to reduce expenditures over time. As someone who has thought about this a great deal I agree with the concept, and not just for the MTA, but not with the number, for reasons discussed below. In political debates, however, the term “productivity” has been used for policies that have nothing to do with its economic definition. Economic productivity is an increase in output given the same amount of work, or a decrease in work for the same amount of output. Political “productivity” can be a reduction in total compensation for workers (generally non-wage benefits), an increase in hours or days worked given the same pay, or a decrease in the quality of services. Any and all of these may or may not be justifiable, but they have nothing to do with productivity. In general, a real productivity gain does not produce losers. By stretching the term where it does not belong, conservative policy advocates have created opposition where none should exist.
The 2.5% average productivity gain recently achieved by the private sector is not the gain within industries, and thus not just the gain from doing the same things more efficiently – sewing 2.5% more clothes or picking 2.5% more vegetables with the same hours of labor. Part of it is a gain from trade due to comparative advantage – Americans are sewing fewer clothes and picking fewer vegetables, but producing more computer chips in highly automated semi-conductor plants and doing more multi-billion-dollar financial transactions. Doing more inherently productive work, in other words. In the 1970s, when soaring oil prices accounted for most of the nation’s imports, leaving less for trade, productivity increased much slower.
So unless the CBC wants the MTA to diversify out of mass transit into more productive lines of business, a 2.5% per year productivity gain is not realistic. Under the circumstances, I believe a 1.0% productivity gain per year is more reasonable, perhaps 1.5% if productivity is low and there is an opportunity to catch up.
Moreover, there is a tendency for service sector productivity gains to be absorbed by better quality rather than a diminished amount of work for the same output. That is because of its inherent person-to-person nature. Thus, it is more feasible for the MTA to train its bus drivers to do a better job, and organize its bus system for better service, than it is to have bus drivers drive more than one bus. The same may be said for teachers in the classroom. Productivity gains are more likely to lead to better education than to fewer teachers, unless we as a society are willing to shift to learning by videos and internet rather than live teachers in a classroom.
I have attached a spreadsheet showing New York City Transit employment by department in 1986, 2002, and (based on the budget) Fiscal 2007, and what employment would have been if beginning in 1986 productivity rose by 1.5% per year — and there was no attempt to do any more work than had been done that year. The division by department is somewhat inaccurate in that sub-departments have been reorganized over the years into different groupings. Moreover, the analysis would be better be done by specific sub-department and title within those sub-departments, but this is the information that is readily available.
Overall, New York City Transit employment is about the same this year as it 1986. But that doesn’t mean there has been no productivity gain, for higher productivity could have been used for an increase in output for a given amount of work rather than a decrease in work for a given amount of output. So I also show the number of NYCT workers who must be doing work that was not done in 1986 today for the projected productivity gain to have been achieved. In fact, the Car Equipment Division (CED) achieved the 1.5% per year employment decrease and also did more work, through the introduction of scheduled maintenance. Maintenance of Way (MOW) hasn’t reduced its employment, but more track is being replaced, in part due to the introduction of easily installed track panels as a substitute for the replacement of individual rails. More trains and buses are being run as well.
Doing more work, of course, is not a productivity gain unless it is useful work. But here, at least, NYCT has apparently succeeded – track failures are down, the mean distance between failure of the rail cars and buses are up, and more people are riding the buses and trains. On the other hand, the Stations department doesn’t seem to have fared as well, although high-entry gates have allowed more station entrances and exits to be open for longer hours. Overall, NYCT may or may not have achieved a realistically achievable productivity gain in the past 20 years. It is reasonable to demand that it do so in the next 20 years. The same may be said of other agencies as well.
The problem is that the CBC, the Manhattan Institute, Mayors and labor negotiators have referred to cuts in benefits, decreases in time off, and even lower wages for new employees as “productivity gains” in contract negotiations. And public employee unions have come, partially in response, to reflexively oppose any and all productivity gains, including real ones. The unions might have objected to real productivity gains anyway. One dirty little secret is the fact that union dues are highly regressive, so unions make more money if it takes more workers to do a job, even if fewer workers could be more highly paid. That isn’t necessarily true for the public employees themselves, however. After all, they continue to benefit from productivity gains in other industries, through lower prices and better goods and services, so it would be inequitable for public employees to refuse to try to be more productive in return. By mixing calls for cuts in compensation per hour worked with attempts to raise productivity, management just puts workers and unions on the same side, against everyone else.
Let’s take just one example. In the last round of contract negotiations, Mayor Bloomberg called for public employees to work 14.3% more hours per week (40 rather than 35 hours) with no corresponding increase in pay and other compensation. This was referred to as a “productivity gain,” but in economic terms it was not. If the employees did 14.3% more work in 14.3% more hours, than such a policy, if enacted, would have broken even on productivity. If the City was merely getting 14.3% more hours of face time, productivity would have fallen. What was proposed, in effect, was not more productivity, but a reduction in total employee compensation per hour worked. That may or may not be justified, but it has nothing to do with productivity. What DC37 agreed to instead, lower pay for new hires, is likely to lead to lower productivity (given competition in the labor market) the city will be hiring less qualified and less motivated workers. The result will be either lower quality work, or hiring more of them to get the job done, if the latter is even possible.
For decades, the railroad industry resisted productivity gains, requiring railroads to hire “firemen” to stoke the coal long after locomotive shifted to diesel, and “brakemen” for the rear of the train long after brakes were automated from the front to the rear. The result was a huge shift of freight transportation to trucking. Similar private sector attempts to thwart productivity gains led to similar losses in sales and jobs in other industries. Public agencies are a monopoly, and thus public employees are a monopoly that can theoretically take as much in taxes from private-sector workers as they choose, using their choice in the marketplace to demand more and more in exchange. But it can only go so far before a reaction sets in. Productivity gains – real ones – are the least painful way for public sector workers to offer private sector workers a fairer deal.