The Bureau of Labor Statistics publishes the quarterly report of productivity and costs using output data from the Bureau of Economic Analysis and the Census Bureau, labor cost data from the Bureau of Labor Statistics and the BEA, and additional data from the Federal Reserve Board. The report provides detailed information on labor costs and usage across different sectors of the United States economy.
Productivity growth is critical because it allows for higher wages and faster economic growth without inflationary consequences. In periods of robust economic growth, productivity ensures that inflation will remain well behaved despite tight labor markets. Productivity growth is also a key factor in helping to increase the overall wealth of an economy since real wage gains can be made when workers are more productive per hour.
According to the BLS, nonfarm business sector labor productivity increased at a 2.5 percent annual rate during the second quarter of 2014. The increase in productivity reflects increases of 5.2 percent in output and 2.7 percent in hours worked. This suggests a return to a growth in productivity following a disastrous 1st quarter of 2014.
While productivity growth is important to ensuring positive future economic activity, the source of productivity growth is also important. If more workers are being hired and increasing production due to greater technology inputs, in other words, if workers are doing more with less, then productivity has both immediate and long term benefits. If, on the other hand, productivity is growing due to wages being squeezed, then future growth is offset by immediate pain. This is unfortunately what is happening in America.
Both on a year over year basis and a quarter to quarter basis, real compensation is either flat or falling – down 2.7 percent on a quarterly basis for non-durable manufacturing for example. In fact, since the 2007/2008 recession, compensation per hour (adjusted for inflation) is flat, and unit labor costs are up just about 2 percent. From a take home wage standpoint, compensation is falling since health care costs have risen rapidly during this same period.
At the same time, production per hour is up by nearly 10 percent, suggesting that much of the growth in the economy is coming not from increased investment, new processes or increased use of technology, but rather out of worker’s pockets. This is likely why even though the economy has generally been growing for 6 years, public opinion still suggests that America is in a recession.
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