Source: Dr. Mike Walden, NCSU COLLEGE OF AG & LIFE SCIENCES, 6/7/15


One of the many economic statistics released regularly is one on labor productivity. NC State University economist Mike Walden pays attention to this number and hasn’t been happy with it recently. What’s wrong?

“Let me first define labor productivity. I think it actually is what many people think it is: It is simply output produced per person working per hour. So it simply says, if you work for an hour in a job, what are you producing? Think about in a factory — how many vehicles you are producing in an hour.

“The problem here is that labor productivity has dramatically slowed in recent years. In fact, it’s been cut by about half. Many, many reasons to worry about this, but probably the most prominent is that there is a big link between labor productivity and wage gain. The faster labor productivity goes up, meaning workers are more valuable, we tend to see historically wages will go up at that rate. If labor productivity slows, wage growth will slow. And of course, we’ve seen wages grow at a very, very slow rate in recent years.

“Now the big question is, Why? Why have we seen this dramatic slowdown in labor productivity? Economists don’t know the exact answer to that.

“We do see a number of things going on in the economy that may be answers. One, we don’t see businesses investing as much as they had prior to the slowdown in terms of buying and instilling new technology in their workforce, which would have an adverse effect on labor productivity.

“We also have a large number of young workers — the millennials — coming into the labor force and replacing experienced baby-boomers.

“And then lastly many businesses simply look out in their economic landscape, and although they see growth, they are still very, very tentative about whether that growth will continue and at what rate. And if they are tentative about that, that’s going to be reflected back on investments in productivity.”