NCPA - National Center for Policy Analysis

Amid Economic Calamities, U.S. Productivity Rises

July 29, 2002

It apparently takes more than a plunging stock market and corporate accounting scandals to hold down America's productivity. That is the major conclusion of a USA Today study of the largest 100 U.S. corporations.

As Federal Reserve Chairman Alan Greenspan recently told Congress, U.S. productivity is likely rising at a "remarkably strong pace" of about 7 percent.

  • That compares with an annual productivity gain rate of 2.5 percent from 1997 until the first quarter of 2002 -- which was more than double the pace of the 1970s and 1980s, and more than double productivity growth in Europe.
  • The USA Today study used a formula called Total Factor Productivity, developed by Massachusetts Institute of Technology economist Robert Solow, under which firms can produce more in one of three ways: hire more workers, increase capital, or produce more from workers and capital they have or the same from fewer workers and less capital.
  • Forty-seven companies on the list saw less productivity improvement last year than the year before.
  • Among companies making productivity gains, only 18 registered improvements greater than 10 percent -- down from 28 that had double-digit gains the previous year.

This is the first recession that productivity gains remained strong throughout -- and future profits are expected to reflect this.

Oddly enough the company with the highest productivity gains was Enron, but its collapse skewed the figures. Experts point out that it is important to remain skeptical of productivity gains that look too good to be true.

Source: Del Jones and Barbara Hansen, "Productivity Grows in Spite of Recession," USA Today, July 29, 2002.

For USA Today text


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