I stumbled across an interview with economist Robert Gordon at Quartz that highlights the point I made earlier about lagging U. S. labor productivity growth. Here’s its opening:
Economist Robert Gordon has spent his career studying what makes the US labor force one of the world’s most productive.
And he has some bad news.
American workers still produce some of most economic activity per hour of any economy in the world. But the near-miraculous productivity growth that essentially transformed the US into one of the world’s most affluent societies is permanently in the country’s rearview mirror.
and here’s a telling snippet:
My book forecast, going out 25 years in the future, productivity growth of 1.2%, which is not that different than in the 40 years since 1970. We had a brief respite from slow productivity growth in the late 1990s and early 2000s, the so-called “dot-com†era when we had massive investment to convert offices to use the internet [and] the beginning of e-commerce.
But if you leave aside that decade from 1995-2005, labor productivity growth in the US has only been 1.4% since 1970. And I’m predicting a slight slowdown in that.
The emphasis is mine. Read the whole thing. 1.4% is certainly slower than previous trend and, for practical purposes, is flat.
The graph at the top of the page, courtesy of the St. Louis Federal Reserve, provides a visual version of that story. Look at the part of the curve since 2009.
Articles at the Bureau of Labor Statistics and the Congressional Budget Office tell the same story.
It’s reasonable to wrangle about why productivity growth has slowed. My own preferred explanation consists of a set of interrelated factors including a period of high returns on capital investment followed by subsequent capital investment inadequate to boost productivity and the non-linearity of returns in terms of productivity to investment, i.e. doubling investment won’t double productivity. But it’s not reasonable to question that productivity has slowed. That’s a fact.
We could increase productivity by increasing investment. We might increase productivity by adding high value labor assets which, presumably, would come from overseas. We cannot increase productivity by adding low value labor assets. That flies in the face of the history of the world over the last three centuries.
I’m sure the full story and factors involved could fill quite a treatise. However, just a visual of the graph, at least to my eye, shows relatively flat productivity growth in the late seventies, the last six years, and in every recession.
People don’t invest when growth prospects are not bright, whatever the factors involved in those prospects.