the FINANCIAL TIMES wrote:
US productivity shows steepest fall since 1993
...The labour department said on Tuesday that output per person-hour outside
the agricultural sector dipped at an annual rate of 1.2 per cent in the
first quarter, marking the first time US productivity has faltered since
1995 and its biggest decline since 1993. The report revised sharply
downward the initial estimate of a 0.1 per cent dip. The sharp
first-quarter drop followed the previous quarter's 2 per cent gain.
Lower productivity and continued gains in worker pay mean higher labour
costs per unit of output - a key inflation gauge. Labour costs jumped at
the fastest pace in a decade - at a 6.3 per cent annual rate instead of the
5.2 per cent in the first quarter initially estimated.
Of course, as the article notes toward the end, labor productivity falls
every time there's a recession or a sharp slow-down of the economy (since
the workers not laid off -- the overhead managers, staff, supervisors --
aren't productive, at least in the short run). This causes unit labor costs
to rise, as does the fact that the less-well-paid workers tend to be laid
off first. But this is not a sign of inflation to come, since it reflects a
fall in demand.
(Wachtel and Adelsheim once argued that recessions promote inflation as
monopoly corporations try to restore profitability (hurt by falling
utilization of capacity) by raising profit margins and thus prices. But
this story seems remarkably quaint in the current competitive era. Monopoly
pricing is relevant -- look what it's done to California energy -- but it's
not a response to falling demand.)
It is the first time US labour productivity has sunk since economists began
asking five years ago whether the US economy had entered a new era of
perpetually fast growth, low inflation, fatter profits and rising living
standards due to the adoption of new technologies and better economic
policies.
Higher productivity was a distinguishing feature of US economic performance
in the 1990's. Other industrialised nations failed to match its twin
achievements of strong job creation and accelerating productivity growth
from 1995 to 2000, according to a recent survey of international trends by
the Conference Board, a New York-based research group.
It's a mistake, however, to assume that just because there's a cyclical
decrease in labor productivity there's also an end to the alleged trend in
productivity growth. In fact, the latter is very hard if not impossible to
measure and it's unclear whether or not there was a new economy spurt in
labor productivity growth or not (as Gordon and Ceccetti are cited as
saying, later in the article).
... the pickup in productivity growth over
the past few years helped suppress US inflation. If the nation's money
supply were rising much faster than its output of goods and services,
inflation might become a bigger problem for the Fed,
these days, the Fed doesn't care about the money supply. Old-style
monetarism is dead, at least in the U.S., because the demand for money is
so unstable.
It's amazing that the high dollar exchange rate isn't cited as a major
reason for the suppression of inflation.
... the sharp, ongoing plunge in business spending on equipment and
software that is supposedly productivity-enhancing and renewed uncertainty
among investors about the course of US economic policymaking amid political
changes in Washington have cast doubt on that as well.
a fall in real investment doesn't affect productivity growth right away. It
takes several years of sustained depression of investment to have this
effect, and it may be counteracted by other things, such as the shake-out
effect, in which the scrapping of the least productive operations raises
the average. The long depression of investment during the 1930s doesn't
seem to have ended the period of relatively fast growth of U.S. labor
productivity which reached from 1919 or so until 1970 or so.
Jim Devine [EMAIL PROTECTED] http://bellarmine.lmu.edu/~jdevine
