The news has been coming so hot and heavy this last week and a half that I overlooked the Labor Department’s release on June 23 of preliminary 2014 data for multi-factor productivity. Consider that oversight corrected!
To remind, this productivity data is different from the labor productivity figures published by Labor each month, as it includes all inputs to the production of goods and services, not just workers and their hours. Unfortunately, these statistics tell generally the same dreary tale told by the labor productivity data – when it comes to generating the greater efficiencies that are the country’s best hope for sustainably high living standards, America is falling way short.
According to the Labor Department, multi-factor productivity for all private non-farm businesses last year rose by even less than in 2013 – 0.8 percent versus 0.9 percent. In fact, this anemic performance marks the fourth straight year of annual gains below one percent. That’s only happened once before since this series started to be compiled (in 1987), and even worse, the previous time was the 2006-2009 period. That tells us that America had a big productivity problem even before the financial crisis and Great Recession struck.
Strangely, this claim isn’t borne out by comparing non-farm private business’ multi-factor productivity gains during recent economic expansions – which usually provides the most reliable measures. Since the data aren’t available on a quarterly basis, it isn’t possible to provide statistics for the precise duration of these growth periods – which don’t start and end on calendar years. But the annual figures get us close enough.
During the 10-year expansion of the 1990s, non-farm business multi-factor productivity advanced by a total of 11.54 percent. Its growth during the bubble-driven expansion of 2001-2007 was less – 9.48 percent. But the annual average was actually higher, since that expansion was four years shorter. The real slowdown has come during the current recovery, which was five years old at the end of 2014. During this period, non-farm business multi-factor productivity has grown by only 3.76 percent.
The Labor Department release emphasizes different time periods – which aren’t even all the same length! But for what it’s worth, they show such productivity increasing at an average annual rate of 1.60 percent in 1987-1990 and in 1990-1995. During the last half of the 1990s – the tech bubble years – private non-farm business multi-factor productivity shot up by 2.90 percent each year on average. This pace slowed to 2.60 percent from 2000-2007, and to 1.40 percent from 2007-2014.
Something else that deserves highlighting in the new multi-factor productivity data: For all the hoopla over America’s continuing innovation and overall global technology lead, since 1995, capital intensity has been making lower contributions on net to multi-factor productivity growth. This good proxy for technology contributed 0.50 percentage points of the 1.60 percent average annual increases between 1987 and 1995. Its role increased to 1.40 percentage points of the 2.90 percent average yearly rises of the late-1990s, and actually grew in relative importance from 2000 to 2007 (1.40 percentage points of 2.60 percent average annual multi-factor productivity growth). But since then, capital-intensity is down to accounting for 0.50 percentage points of the 1.40 percent average annual improvements.
As is important to remember, measuring productivity growth is one of the least scientific aspects of the thoroughly inexact science of economics. And it’s possible that, as technology becomes more important, even the multi-factor productivity figures become less able to capture it accurately. But until widely accepted alternatives emerge, concerns about an apparent protracted American productivity slump seem amply justified.
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