Keeping Labor Productive: Veblen’s Notion of Reserve Capacity and Procyclical Productivity Analysis

Abstract

The technology.productivity puzzle has generated a rancorous debate in economics. Many labor economists claim that computer-related investments have led to structural gains in productivity. Others are skeptical that such high-tech investments are behind recent surges in labor productivity. They argue that the relative increase in productivity growth rates since the early 1990s is largely explained by procyclical effects-an expansion of economic activity that leads to increasing returns and higher labor productivity growth rates. This paper examines the Veblenian explanation of how capitalists attempt to enhance their profitability by restraining production and how widespread accessibility to technology can frustrate capitalistic sabotage, leading to economic expansion and higher labor productivity. The analysis initiates a search for an alternative way of measuring the intensity or robustness of the economic system that is grounded in the labor market. The need for an alternative measurement stems from both a critique of the commonly used capacity utilization figures and the increasingly positive relation between work hours, economic output, and labor productivity. The interplay among technology, excess capacity, productivity, and work hours is admittedly convoluted, but Thorstein Veblen's analysis of reserve capacity lends illuminating insight into how technological advance may lead to cyclical productivity gains that rival, and possibly dwarf, those of a structural nature. The investigation begins with a brief overview of the theoretical debate over the source of productivity improvements as well as the problematic nature of productivity measures. The following section explores Veblen's reserve capacity discussion as an explanation of why economic slack systemically exists within the productive capacity