Productivity Is Down: Are U.S. Workers Slacking Off?

Commentary by Bob McTeer

Source: Forbes 

U.S. labor productivity fell at a 1.9 percent annual rate in the first quarter, the second quarterly decline in a row and the first back to back drop since 2006. According to the official release, over the past four quarters, productivity has risen at a 0.6 percent rate, just one-fourth the nation’s average since the end of World War Two.”

If workers are producing less per hour worked, does that mean they are slacking, less-skilled, or what? Probably, none of the above.

Back in the day, I used to illustrate the productivity paradox by telling of my brief experience picking cotton when I was about 10 years old. My goal was to pick 100 pounds a day, which, at three cents a pound, would earn me $3.00 per day. The adults who worked alongside me—the real cotton pickers—could do 300 pounds a day or more for $9.00 or $10.00 a day. That difference reflected their greater skill, stamina, etc. They were simply more productive than I was.

Before long, however, Billy Joe Hopper, the cotton farmer, brought in a mechanical cotton picker. One person driving that monster could pick acres of cotton per day, leaving us in the dust. That represented a quantum leap in productivity as it is measured. Productivity suddenly had less to do with skill than the ratio of capital to labor.

That’s typical of the way productivity grows over time—up 2.2 percent per year, on average, since World War II. It grows because capital investment keeps adding to the capital/labor ratio. Labor is more productive because it has more and better technology to leverage it.

I referred above to the “productivity paradox.” By that I meant that the productivity of labor probably has more to do with capital than with labor. Labor must keep up with the inventions and innovations and greater capital deepening, but it really can’t claim much credit for rising productivity.

We think of productivity as output per unit of input, but at the aggregate level it is calculated as total output divided by total hours worked. The productivity declines of the past two quarters mean that hours worked have been growing faster than aggregate output. It would be good to improve the productivity numbers by expanding output faster, but not by reducing hours worked.

The underlying problem is a slowdown in capital accumulation relative to the work force that is a reflection of inadequate investment spending. No, our workers aren’t slacking off—most of them anyway.