21 May 2016

Is the U.S. really working? Productivity is falling

George Friedman 

In the long run, increased productivity is one of the most important components of economic growth. Productivity measures the relationship between output and hours worked. The more efficient economic activity becomes, the more goods and services the economy can produce. Nevertheless, America’s labor productivity growth has been slowing down over the last few years.

As you can see from the U.S. Bureau of Labor’s latest data, five of the past nine quarters have seen labor productivity fall compared to the previous quarter in annual terms. In four of these quarters, productivity fell not because economic output declined, but rather because the number of hours worked grew much faster than output.

These declines, as well as the overall trend of slowing labor productivity growth in the U.S., can be attributed to two main factors. First, over the past decade and a half, innovation has slowed down: investment in research and development began declining in the early 2000, and start-ups as a proportion of all businesses decreased.

New technologies meant to make work more efficient have also created new challenges in the workplace. American workers are increasingly distracted, as they use websites like Google and Facebook for non-job purposes. One study, by Salary.com, found that while 64 percent of respondents in 2012 reported wasting some time at work every day, two years later 89 percent of respondents said they wasted at least half an hour every workday.

An economy’s real potential GDP growth in the long run depends on labor productivity and workforce size. Productivity can be a volatile measure, but there are signals that U.S. labor productivity growth is slowing down, which could have a significant impact on U.S. and global economic growth prospects. 

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