Productivity

Trying To Explain Higher Productivity

Productivity for the second quarter of the year is up. The only question is what that means.

  • Productivity for the non-farm sector was up 2.7 percent.

  • That's an improvement over the sixth-tenths of one percent estimate issued last month by the Bureau of Labor Statistics.

  • It's the fastest quarterly growth since late 1993.

The meaning of the impressive numbers' significance, however, depends on whether you believe the productivity optimists or pessimists.

Here's the optimists' interpretation:

  • The upward trend reinforces a continuing trend in recent productivity growth.

  • The U.S. is headed back toward a level of efficiency absent for the last 25 years.

  • The nation's workers produced much more from April through June without working more hours.

  • Rising productivity is the only explanation for the simultaneous coexistence of low inflation, rising profits and the beginnings of wage increases.

The pessimists see things differently:

  • The optimists are only looking at short term figures; over the long term (1991-1997) productivity growth has averaged only 1.2 percent.

  • During the country's best period for productivity growth, 1947-1973, it grew an average of 2.8 percent annually.

  • Rising profits might be coming, not from rising hourly output, but rather from hiring more workers.

  • Or, higher profits might be the result simply of holding back on pay hikes.

Complicating matters, as Fed Chairman Alan Greenspan recently pointed out, is the difficulty in measuring productivity in several major sectors, including financial institutions and noncorporate partnerships and proprietorships. In these sectors, productivity seems to be falling despite higher profits, which would appear to indicate an error in measurement.

If the measurement is restricted to the nonfinancial corporate sector, however, the BLS reports a 3.2 percent growth in the second quarter and an average of 2.4 percent over the last four quarters.

Source: Louis Uchitelle, "Productivity Up; What It Signals Is Still Debated," New York Times, September 10, 1997.

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