How to read labour productivity numbers

Labour productivity is a key ingredient in long-run economic growth. In the US, reasonably poor levels contributed a great deal to the slow economic growth from the 70s through to the 90s:

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So we should expect some attention to this detail – and we get it:

U.S. productivity decelerated at the end of 2007 along with the economy, yet its climb was much higher than expected, while unit labor costs went up far less than projected.

Nonfarm business productivity increased at a 1.8% annualized rate between October through December, the Labor Department said Wednesday. It had gone up 6.0% in the third quarter, a number revised down from a previously estimated 6.3% surge.

The 1.8% increase was far above Wall Street expectations of a 0.5% rise. Economists had expected a slowdown because the economy braked sharply during the fourth quarter, rising just 0.6% after soaring 4.9% during the third quarter.

Now, me? I’m just a miserable bastard, so my interpretation of this won’t surprise anyone, but

  1. Productivity wasn’t really up: it was just down less than expected. That isn’t a good outcome: it’s a bad outcome that followed poor prediction (itself a bad indication);
  2. It was made up of hours worked – meaning fewer people are doing the same amount of work.

This latter point is significant: it means a state of constant whitewater. This is defined by moneyglossary.com as:

Economic, financial, or operational chaos.

Sounds about right (actually – and I’m not kidding – I first learned of the term from a Batman comic).

It means the economy is made up of (i) people losing their jobs, and (ii) people keeping their jobs, but inheriting higher workloads. Either or both ways, the quality of life of the American worker (employed or unemployed) is decreasing. As measured by GDP, this will go down; as not measured by GDP, declining quality of life is a problem for any OECD country.

The Wall Street Journal article contains a handful of ancillary statistics. I quite liked this one:

Nonfarm business output increased 0.4% during the fourth quarter, the Labor Department said in Wednesday’s report. Hours worked fell 1.5%. Hourly compensation increased 3.9%. Real compensation, adjusted for inflation, dropped 0.3%.

That’s right. You either lost your job or had your workload accelerate, but your purchasing power fell. Welcome to the new suburban fable.

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