Productivity Grew a Modest 1.1% in ’95
Productivity, the key factor in how fast living standards can rise, grew only modestly in 1995, dimming hopes that two decades of American income stagnation might be coming to an end.
The Labor Department reported Wednesday that productivity--output per hour of work--rose 1.1% last year after more modest gains of 0.5% in 1994 and 0.2% in ’93.
For the October-December quarter, productivity was negative, declining at an annualized rate of 0.5% as overall growth slowed dramatically.
The figures for the previous years are significantly lower than earlier estimates because the government has switched to a new way of measuring output to correct for biases in computing total output, or gross domestic product.
Under the new measurements, productivity growth has averaged 1% so far in the 1990s, slightly lower than the 1.25% average annual gains in the 1980s. Both decades stand far below the 3.3% average yearly increases in the 1960s.
Before the revisions, productivity appeared to be rising at an annualized rate of 1.66% in the 1990s, leading some economists to hail a new productivity boom after two decades of weakness.
Small changes in productivity have a big impact on Americans’ income levels. Higher productivity means workers are turning out more products more efficiently, thus providing room for their salaries to grow.
The productivity gains of the 1950s and ‘60s were what fueled the boom in wages and living standards during that period. And the meager increases in productivity since 1973 have been reflected in the fact that average hourly earnings, after adjusting for inflation, are lower now than they were that year.
Some analysts said Wednesday’s report shows that forecasts of a productivity boom and rising wages were unfounded.
“We don’t have a productivity boom. That just wasn’t happening,” said David Wyss, chief financial economist at DRI-McGraw Hill Inc.
But other analysts argued that the government’s overhauled statistics are still missing significant productivity growth in the service sector, which now accounts for 80% of the work force.
They noted that the wave of corporate layoffs in recent years should have boosted productivity as well as corporate profits, which have been rising sharply. And they said well-behaved inflation amid low unemployment reflects strength in productivity.
“I am suspicious of these numbers, but at the same time I don’t think we were ever close to getting back to the productivity gains we enjoyed in the 1960s and 1950s, given that our investment rate has been falling and we don’t dominate the global economy anymore,” said Lawrence Chimerine, chief economist at the Economic Strategy Institute in Washington.
Federal Reserve Board Chairman Alan Greenspan, in a speech this week, also questioned the accuracy of productivity measurements, noting a “nagging inconsistency” between such advances as computers and the lagging increases in productivity.
Productivity, in addition to being central to incomes, is also at the heart of the debate over how fast the economy can grow without generating higher inflation. If productivity is increasing faster than currently being measured, it would indicate the central bank could allow the economy to grow faster, something President Clinton urged the Fed to consider last month.
