> Worker productivity shoots up 8.6 percent, best performance > in nearly 19 > years > By Jeannine Aversa, Associated Press, 5/7/2002 10:54 > > WASHINGTON (AP) Worker productivity, a key ingredient to the economy's > long-term vitality, shot up at an annual rate of 8.6 percent > in the first quarter, the best performance in nearly 19 years...
Labor productivity is key to long-term vitality (as some old German guy said), but a single quarter's statistic means little or nothing about the trend in this variable, since quarterly statistics jump around the trend. (This is especially true since the numbers being reported are "preliminary" estimates.) In addition to statistical noise, it likely "shot up" due to: 1. the big increase in demand -- due to monetary and fiscal stimulus -- that allowed employers to use long-term or "overhead" employees' time more completely, or to distribute their salary costs over more units of output. (These folks make little or no direct contribution to production in the short run.) 2. decreases in the amount of overhead labor held, as part of the continued response to the 2001 recession. 3. speed-up of production workers (and/or increases in hours of unpaid work), as a part of the continued response to the 2001 recession and the increase in demand. The above fits with: > ... But the improvement came at a price. Businesses, responding to the lingering effects of last year's recession, cut back on their payrolls. That caused the total number of hours worked to fall at a rate of 1.9 percent. Output, however, rose at a solid 6.5 percent rate.< >... The rise in productivity in the first quarter helped to push down unit labor costs, a gauge of inflation. Unit labor costs declined at an annual rate of 5.4 percent, the biggest drop since the second quarter of 1983. In the fourth quarter, unit labor costs fell at a rate of 3.1 percent.< Unit labor costs only drop due to increases in labor productivity when workers don't share in the benefits of increased productivity. That is, wages are not rising with producitivity. In the short run, in other words, the rate of surplus-value is increasing for this sector of the economy. >... In general, productivity tends to rise strongly when the economy is booming. Gains in productivity can become weak or productivity can fall when the economy slows or contracts.< this is due to effect #1 above. > In the long run, productivity gains are good for workers, for the economy and for companies, whose profits took a hit during the slump.< productivity gains are often _not_ shared with workers, as during most of the quarter-century after 1975. Also, labor productivity gains often imply the shedding of labor (or slow growth of employment), as in manufacturing during recent decades, because demand may not rise in step with labor productivity. (Of course, "labor productivity" refers to only production sold through the market, ignoring external costs & benefits.) > Gains in productivity allow companies to pay workers more without raising prices, which would eat up those wage gains, and permit the economy to grow faster without triggering inflation. If productivity falters, however, pressure for higher wages could force companies to raise prices, thus worsening inflation.< most students of this phenomenon would say that increases or decreases in labor productivity that are due to demand changes -- and effect #1 above -- do not help to avoid or help to stimulate inflation. It's the _trend_ rate of growth of labor productivity that is relevant here. Again, one quarter's labor productivity growth is not a good way to judge the trend. Jim Devine
