Saturday, October 17, 2015

Productivity In the Obama Expansion

Being more productive collectively is how well-being is improved at the individual level.

The thing is, productivity is hard to measure. What we usually do is measure it as a residual (what’s left over). We start with output growth, subtract out how much of that was due to input growth, and what’s left must be productivity growth … at least approximately.

Productivity flagged a little bit this past winter. But compared to the last 4 expansions (the ones associated with Obama, Bush, Clinton, and Reagan), productivity in this expansion looks pretty normal.

Increased productivity is also why workers get raises. The flip side of that is that owners and managers want unit labor costs to increase. This is the amount of money they get from their outputs for each dollar of inputs (labor, capital or technology).

Again, the Obama expansion looks normal. What’s abnormal is the Reagan expansion. How did unit labor costs go up so quickly when productivity didn’t go up that fast? No doubt this has a lot to do with improved efficiency during that period (why, I don’t know).

Read all about it in the article entitled “U.S. Productivity Falls 1.9% in First Quarter” in the May 6 issue of The Wall Street Journal.

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