Today the Bureau of Labor Statistics released its look at Second Quarter 2019 Productivity and Costs. The report prompted the question if the US is more productive, but at a cost.
In short, yes, we're more productive but it costs more.
In long, yes, but only for now, and for the wrong reason:
(1) Productivity--in this sense--is a function of aggregate
output per aggregate number of hours worked. Therefore, it's a key source
of economic growth, as the strong correlation on the graph below demonstrates
(r = +0.677 since 1951). The BLS blurb says output rose 1.9%, but
the hours worked shrank -0.4%. So, we collectively did/made more in less
time, resulting in productivity rising 2.3%.
Many economists (sorry, Keynesians) say that over the long
term, GDP growth is only possible through productivity growth.
(2) Unit labor cost is just labor per unit of output
produced. BLS says it's the ratio of hourly compensation to labor
productivity. So naturally, it shows a negative correlation with
productivity over the long term, like on the graph below (r = -0.677 since
1951).
This negative relationship implies productivity and unit
labor costs tend not to rise with one another, unlike what's reported in
today's BLS release. The productivity growth may be due more to declining
hours rather than improved output as GDP growth stalls. Want more on this topic? Contact us to discuss.
