Slippage in Productivity Stirs Worries
Business productivity in the second quarter deteriorated at a rate unequaled since 1981, the government reported today, prompting some analysts to predict major troubles ahead for the economy’s competitive vigor.
The efficiency of non-farm businesses in producing goods and services declined 1.7% in April through June, its first decrease since 1986 and the biggest decline since 1981, the Labor Department’s Bureau of Labor Statistics said.
Productivity had risen at an annual rate of 3.4% in the first three months of 1988, and had been improving at a rate of 1% to 2% annually in the previous three years.
Reflecting the strong economic expansion, output of goods and services by those businesses responsible for three-fourths of U.S. economic activity rose 4.7% in the second quarter.
But to achieve that growth, companies increased their work hours by 6.5%, hiring hundreds of thousands of new employees to send the unemployment rate to a 14-year low of 5.3%.
“To some extent the job growth is coming at the expense of productivity,” said Larry Chimerine, president of the Wefa Group of Bala-Cynwyd, Pa. “It’s the big issue because if this trend continues, we’re not going to see any improvement in living standards.”
Shortage of Skills
Allen Sinai, chief economist for the Boston Co., a New York consulting firm, said the deterioration in productivity is the first hard evidence of a shortage of skills among newly hired workers.
“We are scraping the bottom of the barrel, so to speak, of new labor market entrants whose skills and training may not be sufficient for using the new data processing and communications technologies that are dominating service industries,” Sinai said.
Calling the development a major change from the past six or seven years, Sinai said a whole new range of government policies beyond fiscal and money supply management is now needed.
“Literacy, retraining, the ability to work with machines, is now much more important to keeping inflation down and productivity up,” he said.
Meanwhile, the Labor Department said labor costs soared 5.9% in the first quarter, the largest gain since a 6.1% increase in the last quarter of 1986, as hourly wages and benefits rose at an annual rate of 4.1%.
