Productivity Rose, Workers Didn’t

Today’s “Productivity and Costs” data from the Bureau of Labor Statistics contain what looks like good news. “Labor productivity increased [1] at a 6.6 percent annual rate during the second quarter of 2009.”

The Associated Press adds context to the data: “Worker productivity, the single biggest factor determining living standards [2], grew at the fastest pace in nearly six years in the spring while labor costs fell by the most in nine years.” That sounds like good news. “Increases in productivity can help boost living standards because companies can increase wages financed by rising output.”

So why aren't workers celebrating?

First, what the AP and the BLS call “labor costs,” most of us call a paycheck. The biggest decline in nine years isn’t good news. Real hourly compensation dropped 1.0 percent last quarter.

Then, we have the irony of productivity. Read the definition with care: “Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours.” In other words, if you make more stuff in less time, you’ve increased your productivity. That’s intuitive.

But watch how it works in real life. In the manufacturing sector, productivity grew 4.9 percent. But that growth came because output fell 9.8 percent and hours worked decreased by an even bigger 14.0 percent. So if you do the math, it’s a 4.9 percent increase in productivity.

But if you work the line, it means your output is down and your hours dropped even lower. Yes, you’re more productive — making less stuff in even fewer hours.

Source: BLS [1]

But that’s not the sound of a happy workplace. That’s the sound of an economy grinding to a halt. Who's listening?

Summary: 

Today’s “Productivity and Costs” data from the Bureau of Labor Statistics contains what looks like good news. So why aren't workers celebrating?