Posted on 09/01/2003 11:43:10 PM PDT by 1rudeboy
By the Numbers
Productivity
By Rodger Doyle
For the first time since the 1960s, U.S. productivity has been growing at an annual rate above 2.5 percent. As numbers go, this may not seem spectacular, but it has enabled the economy to sustain a very low level of unemployment--less than 5 percent in each of the past three years--while holding retail price inflation to about 2 percent a year. The late stages of most business cycles put irresistible pressure on employers to raise wages, which ordinarily leads to increased prices and in turn acts to slow or stop the expansion. But in the present circumstances, employers can raise wages without upping prices because of increased productivity.
According to the President's Council of Economic Advisers, about half of the increase in productivity since 1995 is explained by increased capital equipment--particularly computers and software--plus increased productivity in the computer-manufacturing industry. The remaining half of the productivity increase may reflect new efficiencies from Internet use by business and the normally greater efficiency of employees during periods of high demand.
The better educated benefited the most from the rise in productivity. Average hourly earnings in private, nonagricultural business increased in real terms by about 16 percent during the past 40 years, but professionals did better: physicians, for example, enjoyed an increase in real earnings of 33 percent in the same period. One way of looking at the benefits of rising productivity is to compare various family income groups. The top 5 percent of families had an increase in income of 129 percent in real terms from 1960 to 1998, while the middle fifth had an increase of 54 percent and the bottom fifth only 38 percent. Family income went up not only because productivity was greater for other reasons, such as the increasing number of wives taking jobs outside the home. The average real income of working Americans, as the chart shows, increased beginning in 1995--undoubtedly made possible by the spurt in productivity over the same period.
In 1950 northwestern Europe, as measured by gross domestic product (GDP) per hour worked, was half as efficient as the U.S., but now it is about 90 percent as efficient, and a few countries, including France, were marginally ahead as of 1997. The U.S., however, is far ahead of France--and every other country--in terms of GDP per capita, in part because Americans put in longer hours and because proportionately more are economically active. In France and Germany, for example, only 48 percent of the civilian working-age population actually worked in 1997, as compared with 64 percent in the U.S. Lower labor-force participation and high unemployment rates, as exist in much of Europe, suggest that the least skilled are excluded and so do not drag down productivity. By comparison, the U.S. economy has created millions of jobs for less skilled and presumably less productive workers. Few, however, would disparage low unemployment for this or any other reason.
SOURCES: CHART: U.S. Bureau of Labor Statistics. Average hourly earnings are deflated by the consumer price index to compute real hourly earnings. Adjustment by another widely used index, the GDP deflator, would have resulted in a trend line somewhat closer to that of nonfarm output per hour.
MAP: "International Comparisons of Labor Productivity and Per Capita Income." Bart van Ark and Robert H. McGuckin in Monthly Labor Review, 1999, pages 34–41; July 1999. Available data are shown for all members of the Organization for Economic Cooperation and Development.
And free trade has increased the standard of living, and as I HAVE SAID HERE FOR TWO YEARS, productivity is the driving force behind economic growth. Low taxes help, by all means. I have no problem with MASSIVE tax cuts and budget cuts too (the two are not necessarily linked), but ultimately Saw's Law says that is you have productivity increases, you will have economic/job growth. It has always happened, because supply (caused by higher productivity) creates its own demand.
Government has to get its revenue from someplace.
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