NCPA - National Center for Policy Analysis

Dramatic Increase In Productivity

December 8, 1999

The productivity of American workers soared during the third quarter of 1999, according to U.S. Labor Department calculations -- achieving the fastest rate of increase in seven years. This was very good news for inflation-fighters who surmise that greater productivity drives down production costs, thereby dampening inflation pressures.

  • Productivity in the nation's non-farm businesses rose at an annual rate of 4.9 percent during the July-September period.
  • That represented a sharp upward revision from the initial estimate of a 4.2 percent increase during the April-June quarter, when productivity briefly slowed.
  • Unit labor costs fell at an annual rate of 0.2 percent during the third quarter.
  • In the last year, labor costs have risen just 1.5 percent, despite robust increases in workers' pay.

Increased productivity allows businesses to pay workers more without raising prices and igniting inflation.

Economists credit businesses' investment in high technology for the productivity gains. To give just one example, lasers are now commonly used in sawmills to measure incoming logs. Then computers determine the most efficient way to saw them into lumber. The process is much faster than human calculations and reduces waste.

The July-September increase was the largest since productivity jumped 7.4 percent in the last three months of 1992, while the nation recovered from a brief recession. The interesting thing about the latest leap is that it didn't have to build on the base of a previous economic downturn.

Economists are debating whether the productivity boom is temporary or whether it represents a longer-term shift in the nation's economic structure.

Source: George Hager, "Worker Output Spurts, Helps Control Inflation," USA Today, December 8, 1999.


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