NCPA - National Center for Policy Analysis

Benefits Of Increased Productivity

March 22, 1999

Eight years into the economic expansion, labor shortages and rising wages should either cause inflation to go up or profits to come down. Yet neither is happening. The annual inflation rate is only 1.6 percent, compared to the last growth cycle in the 1980s when the Consumer Price Index reached 4.6 annually.

As for continued high profits, economists are convinced that the key lies in increasing the productivity of workers.

  • The annual rate of U.S. productivity improvement has jumped to 2 percent since 1995 from 1 percent during the early 1990s.
  • Some corporations report that they are achieving productivity gains by matching personnel to work demand much more closely than in the past -- using part-timers and temporary help while constantly adjusting their schedules to production needs.
  • Also, they are shifting work to lower-cost geographic areas.
  • Personnel costs are being controlled by investments in high-tech production methods.

Executives say there are many more labor-saving techniques which will be employed in the future. "We have just begun," comments one Maytag Corp. executive.

Source: Louis Uchitelle, "Productivity Gains Help Keep Economy on a Roll," New York Times, March 22, 1999.


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