Increasing productivity is crucial for national prosperity and can be achieved by generating more output per hour of work.
Improving productivity requires a multi-faceted approach including talent attraction, digital transformation, and collaboration with others to drive growth.
Deep dives
The Importance of Productivity for Economic Growth
Productivity is crucial for collective wealth generation and national prosperity. Increasing productivity by generating more output per hour of work is essential for growing wealth and prosperity. It is a simple yet important insight often overlooked amidst day-to-day business cycles. Productivity is measured by output relative to inputs, such as labor productivity. Certain states in the US have above-average productivity and productivity growth, while others lag behind. There is an increasing divergence in productivity levels among different states.
Factors Affecting Productivity Divergence
The reasons behind the productivity divergence among states include attracting and fostering more productive companies, labor and capital attraction, and healthy dynamics within specific states. However, some factors contributing to this divergence remain unclear, and it is an ongoing question. Higher productivity states benefit from agglomeration effects, where companies interact, learn from each other, and innovative interactions occur. Various sectors show different productivity levels and growth rates, with some being more productive but slower-growing than others.
Unlocking Productivity Potential and Improving Company Performance
Improving productivity requires a multi-faceted approach. Companies should focus on talent attraction, providing on-the-job training, and implementing policies that support work-life balance. Digital transformation and investments in technology, research, development, and intangibles are crucial for leveraging the benefits of technology. There is a need to bridge the gap between the top 10% of highly productive companies and the rest, understanding their dynamics and capitalizing on the potential of technology and skilled labor. Additionally, companies can benefit from collaborating with others and shaping local economic contexts to drive productivity growth.
Once an engine of US power and prosperity, US labor productivity has grown at a sluggish 1.4 percent since 2005. Imminent challenges such as workforce shortages, debt, inflation, and the cost of energy could be ameliorated with higher productivity. On this episode of The McKinsey Podcast,Olivia White, a McKinsey senior partner and a director of the McKinsey Global Institute, and McKinsey partner Charles Atkins join McKinsey editorial director and host Roberta Fusaro to share tangible ways to boost US productivity.
Theme music produced, composed, and performed by Joy Ngiaw.
