Low interest rates have helped lazy companies but for how long?

This article is more than 12 months old

Low interest rates of the past decade may have allowed companies with low productivity to survive longer

The average German worker shows up for 35 hours per week, as does the average Swiss worker.

The average Greek worker shows up for 42 hours per week.

A US citizen is at work for 38 hours, while Mexicans work 43 hours.

Koreans work almost 44 hours a week.

Does this mean that Koreans work the hardest? Not necessarily.

The number of hours worked is not a very good economic indicator.

The important question is how hard a worker works when at work.

A long work day punctuated by regular tea breaks and hours watching YouTube videos may not produce much that is of economic value.

A short work day of discipline and focus can produce higher output with fewer hours at the workplace.

How hard one works is what economists call "productivity".

Productivity is an attempt to measure the economic value of what a worker does.

The very low interest rates of the last decade may have given lazy companies a lifeline... A normal interest rate cycle would have killed off more of such companies.

Productivity will be influenced by the skills of the worker. If you are good at your job, you are likely to do more per hour worked.

Productivity will be influenced by the quality of the tools available to the worker. A day spent on a technical helpline trying to get your laptop to work does not add much economic value.

Productivity will also be influenced by the enthusiasm of the worker. A motivated worker will do more than a demoralised worker.

Productivity is hard to measure.

It is also getting harder to measure as structural change and the rise of the service sector alters the economy.

In a team environment, the productivity of one worker may also depend on the productivity of other workers.


Despite being hard to measure, how hard workers work is very important to an investor.

If a company's wage bill rises 5 per cent, but workers work 10 per cent harder, the company is getting a lot more for its money. Workers who work harder in this way produce bigger profits.

As global labour markets get tighter, the question of whether workers are working harder becomes more important.

This will determine profit and price inflation pressures.

Profit matters to equities.

Price inflation pressures matter for central bank policy and bond markets.

Normally, a company staffed by lazy workers will struggle to survive.

Workers who do not work very hard will generally be high cost, and this will eat away at profits. The very low interest rates of the last decade may have given lazy companies a lifeline.

Research on large and medium-sized companies by the OECD suggests that low interest rates have let more lazy, unprofitable companies cling to life.

A normal interest rate cycle would have killed off more of such companies.

More lazy, unprofitable companies clinging to life will drag average productivity lower.

It also means that average productivity in an economy is less useful as a guide to how hard workers in good companies are working.

OECD economists have found a productivity gap between leading companies and lagging companies across all sectors of the economy.

When it comes to productivity, those that are good are very, very good; those that are bad are mediocre.

Since 2001, productivity growth in the top 5 per cent of manufacturing companies has been almost five times that of the rest of the sector.

What does this mean? It means that average productivity - how hard workers work on average in an economy - is less and less useful to investors.

An investor in a really good company should be able to find that the workers are working harder, and that profits are better.

Wage increases in a really good company need not produce higher price inflation, because hard work offsets the wage increase.

Conversely, low interest rates may have deluded investors in a lagging company. Average productivity will understate the laziness of the workers.

The writer is global chief economist at UBS Wealth Management. This article appeared in The Business Times on Feb 22.