Perryman: Productivity

Labor productivity rates essentially measure the amount of gross domestic product created per hour of work. It is a crucial measure of both current and potential future economic performance. Simply stated, if you multiply the number of hours worked by the amount of output that each of those hours produces, you have defined total production. Fortunately, recent data for the United States indicates a significant uptick. 

The US Bureau of Labor Statistics tracks this information. Over the past five years, labor productivity grew at an annualized rate of 1.9% percent (despite a pandemic in the timeframe), which is notably higher than the 1.5% annual rate of the previous business cycle (fourth quarter of 2007 through the fourth quarter of 2019). Even more impressive is the increase over the past couple of years, during which there was a 5% gain. 

Productivity depends on many factors. From a broad perspective, infrastructure is essential. Highways, water supplies, broadband, and electricity are all crucial, and economic expansion depends on adequacy and efficiency. Education is also integral, from public schools through post-secondary options. Workers cannot be optimally productive without preparation ranging from literacy to high-quality training or higher education. Capital investment is another aspect, as employees need the right tools and systems. 

Much of the recent gain may be attributed to technology. In essence, advances in manufacturing allow the same number of people to make more stuff. Moreover, AI is relieving workers in many occupations of mundane tasks (or at least expediting the process). The labor productivity index is currently higher than it has even been, and US workers are among the most productive in the world, ranking at or near the top by any measure. 

In the face of long-term demographic trends, productivity increases are particularly important. The US population is growing very slowly, with most of the expansion driven by immigration. Worker shortages are an inevitable outcome, and we can expect labor challenges to persist. 

Rational immigration reform would help to some extent and is desperately needed. At the same time, enhancing the productivity of existing workers is also essential. As new technology and methods inevitably displace some employees, providing retraining to facilitate the affected individuals finding different jobs is crucial (not only from an individual perspective, but also to ensure continued economic progress). 

Investment in the things that enhance workers’ productive capacity is key to future prosperity. As an added benefit, these investments also tend to improve our daily lives. Looking ahead, innovation and investment will help us do more with fewer people. The US is well positioned for expansion once we get through the current chaos, and high worker productivity is one reason for our positive prospects. Stay safe!

Editor’s Note: The above guest column was penned by Dr. M. Ray Perryman, president and chief executive officer of The Perryman Group (www.perrymangroup.com). The Perryman Group has served the needs of over 3,000 clients over the past four decades. The above column appears in The Rio Grande Guardian International News Service with the permission of the author. Perryman can be reached by email via: shelia@perrymangroup.com.

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