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Productivity growth since 1950

The chart shows productivity growth for various time periods. For 1950 to 1970 it was 2.5%; 1971 to 1990 was about 1.3%; 1991 to 2000 was 2.2%; and 2001 to 2014 was 2.1%.
U.S. growth in worker productivity was very high between 1950 and 1970. It then declined to lower levels in the 1970s and the 1980s. The late 1990s and early 2000s saw productivity rebound, but then productivity sagged a bit in the 2000s. Some think the productivity rebound of the late 1990s and early 2000s marks the start of a “new economy” built on higher productivity growth, but this cannot be determined until more time has passed. (Source: U.S. Department of Labor, Bureau of Labor Statistics.)

The “new economy” controversy

In recent years a controversy has been brewing among economists about the resurgence of U.S. productivity in the second half of the 1990s. One school of thought argues that the United States had developed a “new economy” based on the extraordinary advances in communications and information technology of the 1990s. The most optimistic proponents argue that it would generate higher average productivity growth for decades to come. The pessimists, on the other hand, argue that even five or ten years of stronger productivity growth does not prove that higher productivity will last for the long term. It is hard to infer anything about long-term productivity trends during the later part of the 2000s, because the steep recession of 2008–2009, with its sharp but not completely synchronized declines in output and employment, complicates any interpretation. While productivity growth was high in 2009 and 2010 (around 3%), it has slowed down since then.

Productivity growth is also closely linked to the average level of wages. Over time, the amount that firms are willing to pay workers will depend on the value of the output those workers produce. If a few employers tried to pay their workers less than what those workers produced, then those workers would receive offers of higher wages from other profit-seeking employers. If a few employers mistakenly paid their workers more than what those workers produced, those employers would soon end up with losses. In the long run, productivity per hour is the most important determinant of the average wage level in any economy. To learn how to compare economies in this regard, follow the steps in the following Work It Out feature.

Comparing the economies of two countries

The Organization for Economic Co-operation and Development (OECD) tracks data on the annual growth rate of real GDP per hour worked. You can find these data on the OECD data webpage “Labour productivity growth in the total economy” at this website.

Step 1. Visit the OECD website given above and select two countries to compare.

Step 2. On the drop-down menu “Variable,” select “Real GDP, Annual Growth, in percent” and record the data for the countries you have chosen for the five most recent years.

Step 3. Go back to the drop-down menu and select “Real GDP per Hour Worked, Annual Growth Rate, in percent” and select data for the same years for which you selected GDP data.

Step 4. Compare real GDP growth for both countries. [link] provides an example of a comparison between Australia and Belgium.

Australia 2009 2010 2011 2012 2013
Real GDP Growth (%) 0.1% 1.0% 2.2% 0.8 0.7%
Real GDP Growth/Hours Worked (%) 1.9% –0.3% 2.4% 3.3% 1.4%
Belgium 2009 2010 2011 2012 2013
Real GDP Growth (%) –3.4 1.6 0.8 –0.6 –0.2
Real GDP Growth/Hours Worked (%) –1.3 –1.4 –0.5 –0.3 0.3

Step 5. Consider the many factors can affect growth. For example, one factor that may have affected Australia is its isolation from Europe, which may have insulated the country from the effects of the global recession. In Belgium’s case, the global recession seems to have had an impact on both GDP and real GDP per hours worked between 2009 and 2013, though productivity does seem to be recovering.

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Source:  OpenStax, Principles of macroeconomics for ap® courses. OpenStax CNX. Aug 24, 2015 Download for free at http://legacy.cnx.org/content/col11864/1.2
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