NCPA - National Center for Policy Analysis

Turning Productivity Skeptics Into Believers

March 13, 2002

All the talk about a fundamental shift in productivity during the booming 1990s turns out to have been real. The huge jumps in productivity noted in the 1990s are only stronger today. Even in the 9 months after the recession began in March 2001, output per hour worked actually grew at an annual rate of 2.3 percent. Normally, there's little or no productivity growth during a slump - unless something truly remarkable is going on.

  • During the 1980s, productivity growth languished in an average annual range of 1.37 percent.
  • Then by the mid-1990s, technological advances such as the networked personal computer, huge investments by companies in all sorts of new devices, better business practices such as just-in-time inventory and a host of other improvements pushed productive performance to heights never seen since the 1960s.
  • In the seven years since 1995, it has averaged 2.2 percent a year -- with evidence that it hit 2.54 percent in the 2000-2001 period.
  • Now, according to a new study by the Conference Board, U.S. productivity growth is three times that of the European Union.

The gains are widespread -- not just confined to computer manufacturing, as skeptics once argued.

All this good news invites some caution, however. Costs of doing business, for example, have risen significantly since Sept. 11 -- and this will impose a drag on future productivity growth. Nevertheless, experts suggest that future growth will be in the 2.2 percent range, and that a return to the dismal days of the 1970s or 1980s just won't happen as the factors that produced the productivity miracle of the 1990s will continue to drive the economy.

Source: Anna Bernasek, "The Productivity Miracle Is for Real," Fortune, March 18, 2002.


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