If you focus too much on the latest statistics and speculation about what could go wrong, it’s easy to lose sight of some very important long-term trends. The solid growth of U.S. productivity is one piece of very good news that’s not getting sufficient attention.
There will always be some pessimists who think that productivity growth is a bad thing, reasoning that if one person can do the work of two, the unnecessary second worker will become unemployed. The record of history on that hypothesis is extremely clear, however. U.S. workers today produce more than three times as much per hour compared with their counterparts 50 years ago, and even so, the unemployment rate today is the same as it was in 1950. Instead of putting people out of work, what productivity growth has always meant in practice is a rising standard of living for everyone. No other statistic may be as important for determining long-run economic welfare as productivity.
Between 1947 and 1973, U.S. output per worker chugged along impressively at an annual growth rate of 2.7% per year. Beginning in 1973, however, that trend abruptly deteriorated, with productivity growing at only a 1.4% annual rate for the next two decades.
The consensus among most economists is that there is no one factor that accounts for that productivity slowdown, but rather that it was the result of a series of different influences that each made a modest contribution and happened to occur at about the same time. Among the factors that are likely to have played some role are increased safety and environmental regulation, reduced investment in productive equipment, and demographic changes,
along with a number of other developments.
Just when economists were thinking we understood that trend, however, the facts on the ground were reversed. U.S. productivity began to grow quickly again in the late 1990′s, and there now are enough data to suggest that this change is for real. Between 1995 and 2004, U.S. output per worker grew at a 2.9% annual rate, even faster than the impressive pre-1973 pace. It’s hard to attribute this to a change in any of those factors thought to have contributed to the slowdown in the seventies. Instead, the good news seems to be the result of a new set of favorable developments, chief among which is the way that computers and information technology have changed so much about the American workplace.
Whatever the explanation for the productivity gains of the last decade, the above graph displays every indication that this welcome development is continuing. Most recently, the Bureau of Labor Statistics reported productivity gains at a 3.2% annual rate for the first quarter and 2.2% annual rate for the second quarter of 2005.
So why doesn’t that get more attention in the press? I guess the headline, “decade of good news continues” just doesn’t sell as many papers.