Another Reason for Stagnant Wages: High Productivity
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The Fiscal Times
June 1, 2014

Corporate workers in the U.S. put in almost 200 billion hours on the job last year. As any clockwatcher can attest, that’s a lot of time. But it’s almost exactly the same amount of hours worked in 1998, a new report from the Bureau of Labor Statistics notes, despite the addition of 40 million people to the population.

If the average number of hours worked per person fell over those 15 years, output did not. Inflation-adjusted GDP was 42 percent higher in 2013 than in 1998.

The study, written by economist Shawn Sprague of BLS, finds that the change is, unsurprisingly, due entirely to growth in productivity.

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“One thing can be said for certain: the entirety of this additional output growth must have come from productive sources other than the number of labor hours,” he writes. “For example, businesses may increase output growth by investing in faster equipment, hiring more high-skilled and experienced workers, and reducing material waste or equipment downtime. In these and other cases, output may be increased without increasing the number of labor hours used. Gains in output such as these are indicative of growth in labor productivity over a period.”

What that means for workers in the economy is far from clear. Sprague looks closely at the trends for both employment and productivity through the Great Recession, and notes that even as employment plummeted during its worst years, productivity continued a relentless rise, increasing most sharply through the trough of the economic downturn.

“One particularly interesting thing to note about this period during 2009 is that although productivity growth was tremendous during this time, the economy was still in the doldrums,” Sprague writes. “Unemployment was nearing 10 percent, and the United States had lost hundreds of billions of dollars in potential national output, still languishing in an economy that was underutilized…. As the recessionary period shows, it is possible to have a situation where output and hours are both dropping, while productivity remains positive, and even grows substantially.”

It’s unclear what Sprague’s observations mean for employment growth going forward. Without increased demand, businesses will likely look to produce at current levels while improving productivity.

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“There is no more important question for the long-run health of the U.S. economy than whether a fairly robust rate of productivity growth can be sustained,” wrote economist Timothy Taylor, editor of the Journal of Economic Perspectives, in response to Sprague’s paper.

“The more immediate question is what to make of an economy that is growing in size, but not in hours worked, and that is self-evidently having a hard time generating jobs and bringing down the unemployment rates as quickly as desired,” Taylor continued.

“I'm still struggling with my own thoughts on this phenomenon. But I keep coming back to the tautology that there will be more good jobs when more potential employers see it as in their best economic interest to start firms, expand firms, and hire employees here in the United States.”

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A longtime reporter on the intersection of the federal government and the private sector, Rob Garver is National Correspondent, based in Washington, D.C. He has written for ProPublica, The New York Times and other publications.