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More Evidence of America’s Productivity Stagnation

Since productivity and its growth are widely and rightly considered enormous keys to America’s hopes for sustainably rising living standards, the government’s latest data, on multi-factor productivity in 2013, were anything but encouraging. The new figures, issued by the Labor Department on Thursday, add meaningfully to the evidence that America’s performance on this vital front continues lagging badly by historical standards.

Feeble U.S. productivity growth is being fingered lately as a major weakness of the current economic recovery, but this assessment is based largely on the labor productivity statistics, which come out quarterly, with only a two-month lag. Although the multi-factor productivity numbers are more dated, they’re also more comprehensive. They measure America’s usage not only of workers to produce a given unit of production, but of the full range of what economists call inputs – including, as the Labor Department explains, investment, “technological change, efficiency improvements, returns to scale, [and] reallocation of resources….”

Preliminary 2013 data came out last July, and this set of revisions create an even dimmer picture than the narrower data. It was nice to see the initial gains for both all private businesses and for private non-farm businesses upped from 0.3 percent and 0.7 percent, respectively, to 0.9 percent and 1.1 percent. But these improvements were more than offset by downward revisions for 2012. As a result, the recent, sharp deterioration in productivity growth remained solidly in place, and the government numbers show that the problem predates the financial crisis and Great Recession.

According to the new report, between 1987 and 2013, multi-factor productivity for private non-farm businesses rose at a compounded annual average rate of 2.1 percent. This performance peaked during the tech boom of the late-1990s, at 2.9 percent. But by 2012-13, it sank all the way to 0.9 percent. In fact, since 2005, multi-factor productivity has grown by more than one percent in only one year – 2010 – and that 2.8 percent jump followed the crisis- and recession-spurred consecutive declines of 2008 and 2009. Revealingly, in 2011, multi-factor productivity didn’t grow at all.

Another worrisome finding of the new Labor Department numbers: Lots of this dreary productivity news stems from the fact that the improvements that are being registered are getting less and less dependent on the use of technology. For all the crowing continually heard about Facebook and Twitter and Uber and Big Data – not to mention the purported surge of possibly job-killing robotics and artificial intelligence into the workplace – one important gauge of capital intensivity (capital services per hour of all persons) is now down for three straight years. That kind of decline is a first (in a data series that started in 1987).

Most responsible economists will admit that productivity, and why it changes, is one of the least understood areas of their discipline. So these government numbers could well be missing a genuine, beneficial, revolution in how efficiently America uses all its available resources. At the same time, it’s at least suggestive that faltering multi-factor productivity growth has coincided with the massive offshoring of the economy’s most productive sector (manufacturing, at least according to the labor productivity data).

Concluding that this relationship is actually cause and effect isn’t much of a stretch for me. And it means that boosting the nation’s subpar productivity performance will depend heavily on using trade policy and similar tools to maximize the level of truly productive activity that takes place in the United States.

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