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December 1982, Vol. 105, No.
12
Productivity in commercial banking:
computers spur the advance
Horst Brand and John Duke
The computer was among the major forces that spurred labor productivity advance in commercial banking in 1967-80. The computer also facilitated great increases in banking output. Labor requirements per unit of output, however, declined rather slowly during the period.
Output per employee hour in commercial banking rose at an average annual rate of 1.3 percent between 1967 and 1980nearly the same as for the nonfarm business sector as whole (1.4 percent).1 Data for a productivity measure for years prior to 1967 are inadequate, and none was calculated. Output over the period examined rose at a rate of 6.0 percent per year, employee hours, at a rate of 4.6 percent. The rise in banking productivity was associated with strongly expanding customer services and with advances in computer technology and their rapid diffusion throughout the industry. However, the spread of branch banking, while enhancing access to banking services, somewhat retarded productivity improvement, partly because scale economies became less favorable.2
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1 Commercial banks are establishments primarily engaged in accepting deposits from the public and making loans and investments. They are designated as No. 602 in the Standard Industrial Classification (SIC) Manual of the Office of Management and Budget. The industry is part of SIC 60banking, which also includes Federal Reserve Banks, mutual savings banks, trust companies not engaged in deposit banking, and establishments performing functions closely related to banking. Nonbanking subsidiaries of bank holding companies are not included; they are separately classified by primary activity. See Federal Reserve Bulletin, December 1972. Commercial banks account for approximately 90 percent of the employment of the total SIC 60 group.
A detailed description of banking output and of the procedures followed in measuring banking productivity, output, and employee-hours, as well as the weighting scheme underlying the output measure, is available upon request.
2 There is wide agreement among industry observers that scale economies in banking have declined with the spread of branchingthat is, more resources, including labor inputs, are required per unit of output. Among definitive studies are Costs in Commercial Banking, by Frederick W. Bell and Neil B. Murphy (Federal Reserve Bank of Boston Research Report No. 41, April 1968), and "Economies of Scale and Marginal Costs in Banking Operations," by George J. Benston (The National Banking Review, June 1965), reprinted in that report. Industry observers confirm that the tendencies analyzed in these works have persisted.
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