Low Pay Hikes Boost Productivity Rate
The smallest increase in hourly labor costs in 38 years boosted the nation’s non-farm productivity at an annual rate of 1.7% in the first quarter of 1987, the government said Monday.
A key measure of U.S. competitiveness with foreign economies, the improved efficiency in producing goods and services reversed a downward trend in productivity during the last half of 1986.
The preliminary first-quarter productivity data from the Labor Department showed labor costs per unit among non-farm businesses dropping at an annual rate of 1.6% and total output increasing 5.4%. That compares to a 4.2% increase in per-unit labor costs on a 2.7% rise in output the previous quarter.
Private economists said the figures bode well for taking advantage of the falling dollar to improve U.S. exports and decrease imports this year as well keeping a lid on wage-push inflation.
But there was evidence that the increased productivity is taking a toll on workers, with their hourly pay falling in real terms and more relying on overtime and spouses and children to take jobs in order to maintain family incomes.
Decline in Wages
According to the Labor Department’s Bureau of Labor Statistics, hourly wages and benefits--after accounting for inflation--dropped at an annual rate of 4.9% the first quarter of 1987.
In absolute dollar costs that do not take inflation into account, hourly labor costs rose 0.1%, matching the smallest quarterly increase on record since the spring of 1949. The BLS has been keeping that data since 1947.
The 5.4% increase in output of goods and services by private non-farm businesses--which account for three-fourths of the gross national product--was the biggest jump in three years.
But the number of hours worked to achieve it rose only 3.6%, accounting for much of the productivity turnaround. Productivity had declined at annual rates of 0.3% and 1.5%, respectively, in the third and fourth quarters of 1986.
Among manufacturers, which account for about one-fourth of the nation’s economic activity, productivity increased at an annual rate of 1.4% in January, February and March, compared to a 0.2% drop the last three months of 1986.
Growth in manufacturing output at 2.8% was smaller than the 3.2% increase in the last quarter of 1986.
Hourly wages and benefits for factory employees dropped 0.9% in the first quarter, effectively reducing those workers’ purchasing power for each hour worked by 5.9% after taking inflation into account, the BLS said.
“It’s clear that American manufacturers have squeezed back on labor costs because of global competition,” said Allen Sinai, chief economist for Shearson Lehman Bros., a New York investment house. “But much of the increased output was in rebuilding inventories. To sustain that growth, consumer spending is going to have to turn up.”
Sinai said that, despite diminished purchasing power in terms of hourly wages, household earnings are still on the rise, largely because many families now have both spouses and one or more of their children working.
“In after-tax terms, more money is coming in,” he said. “Weak auto sales show there is not much spending on big-ticket items; but unless there is a recession and jobs are lost, I think consumers will have the wherewithal to spend enough to prevent a massive cutback in production.”
Martin Baily, an economist at the Brookings Institution in Washington, said the figures indicate that the United States, because of the falling dollar, is closing a productivity gap with Japan and West Germany.
“We’ve had slower productivity growth than those countries for a long time,” he said. “But we and Great Britain have finally shaken out the inefficiencies.”
Although companies in Japan and West Germany also are beginning to put pressure on their labor costs to offset the effects of the falling dollar, “they do not have as much room for shakeouts,” Baily said.
