NCPA - National Center for Policy Analysis


May 26, 2004

This year's annual report of the Federal Reserve Bank of Dallas looks at productivity. At the simplest level, productivity is about doing more with less--less labor, less energy, less capital. It is because each worker today produces far more than those in the past that we have a higher standard of living, says Bruce Bartlett.

According to the report:

  • Output per person is about 25 times higher today that it was in 1776; and unless productivity increases, businesses will not have the resources to increase real wages and raise future living standards.
  • A key benefit of higher productivity is that we work far less today than in the past; in 1830, the average worker put in a 76-hour workweek; this fell to 60 hours in 1890, 39 hours in 1950, and just 34 hours today.

Workers today are able to work less because capital, technology, education and training along with managerial innovation have combined to raise output per hour, says Bartlett:

  • Historically, labor productivity in the United States has grown 2.3 percent per year, insuring that living standards double every 31 years -- about a generation.
  • But after 1973, this trend took a nosedive for reasons economists are still unclear about.
  • From 1973 to 1995, productivity increased only 1.5 percent per year; at this rate, it would take 48 years for living standards to double, says Bartlett.

Since 1995, productivity has rebounded and even accelerated to 3.2 percent per year--enough to double living standards in just 22 years if sustained. Just as economists don't know for sure why productivity fell after 1973, they are unsure why it jumped after 1995. One explanation is that computers and the Internet made many types of work much easier and raised output, says Bartlett.

Source: Bruce Bartlett, "Labor Productivity in the United States," National Center for Policy Analysis, March 26, 2004, and the 2003 Annual Report, Federal Reserve Bank of Dallas, "A Better Way Productivity and Reorganization in the American Economy," May 13, 2004.

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