On the surface, American workers aren’t as productive as they were before. But a dissection of the data seems to tell a different story.
According to recent data from the Bureau of Labor Statistics, labor productivity fell 2.2% in the fourth quarter of 2015 compared to the third quarter. Year-over-year, it grew just 0.5%. But hours worked was up 3.2% quarter-to-quarter and 1.6% from last year.
Labor productivity’s official growth rate has been relatively meek since the financial crisis. Growth averaged 1.2% annually from 1973 to 1979 and steadily increased to 2.6% in the period from 2000 to 2007. Then in the period from 2008 to 2015, productivity growth went back down to 1.2% again.
According to Brian Barnier, principal at ValueBridge Advisors and founder of FedDashboard.com, labor productivity only appears weaker during the course of a recovery, as more workers return to the workforce.
“Hours on a population-adjusted basis that still haven't quite recovered to where they were in 2007,” Barnier said. “So assuming everything else is fine, more hours worked is good for the worker.”
Meanwhile, fixed assets relative to hours worked have declined, also making productivity appear to fall even if that’s not really what’s happening. Breaking down fixed assets into three main components – physical structures, equipment, and intellectual property – offers another clue into how technology is changing labor productivity.
The value of intellectual property and equipment compared to hours worked has been flat to modestly up since the recession. But investments in more pricey physical structures – factories and buildings, for example – have dipped compared to hours worked.
“What we’re really seeing is much more efficiency in the use of buildings,” said Barnier. “We're seeing smaller-footprint manufacturing coming from Japan to the U.S. ... And we're seeing things like additive printing. We're seeing hyper-local manufacturing, all these technology trends, all of which are good, not bad.”
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