Letter to the Editor: Time to face decline in labor productivity
Published 9:25 am Monday, August 7, 2023
To the editor:
Professor Michael Walden, an economist at North Carolina State University whose views on economic trends are frequently sought, provided this paper last week a cogent analysis of recent trends in U.S. labor productivity. As a fellow practitioner in the “dismal science of economics” I’d like to amplify on his ideas and perhaps provide further context.
Professor Walden states the quarterly rates of change in U.S. labor productivity were extremely volatile from mid-2121 to mid-2023. Yet overall it declined at a rate unseen over the past seven decades. He attributes this to a few factors:
• a loss of education during the pandemic;
• workers suffering from stress related to inflation and the pandemic;
• a change in attitudes towards work (i.e., work/life balance), particularly among younger workers;
• the movement of workers into new jobs (i.e., labor churn); and
• the rise of remote work.
U.S. managers have complained for a long time about their inability to hire workers who can read, write and navigate numbers. The National Assessment of Educational Progress (NAEP) confirms this, reporting a deep decline in reading and math scores from 2020 to 2023. Yet beyond skills learned in school there is also a growing decline in trainability. This suggests not only a deficit in attitude, but in aptitude as well.
This is not just a short-term phenomenon, reflecting the dislocation from the pandemic. Robert Gordon and other economists have tracked the long-term decline in U.S. output per worker, starting from the 1970s to the early 2000s. Data collected by the Bureau of Labor Statistics suggest that from 2011 to the present annual gains in labor productivity has been below the long-term average of 2.2% since 1948.
Professor Walden concludes stating labor productivity is higher today than in 2019. But that’s only because productivity tends to improve year-by-year. However, the rate of change (i.e., the second derivative) has been negative. Since 2011 the improvement has been of the order of 1.0-1.5%. Before 2011 the annual gain in U.S. labor productivity was of the order of 2%, and in earlier decades the annual improvement was of the order of 3%.
In elementary economics the annual gain in GDP is the combination of 1) the number of workers employed and 2) their productivity. The latter is crucial for raising the standard of living of workers and their families. In the past the average gain in the first factor was of the order of 1%, and the average gain in the second factor was of the order of 2%, yielding an average 3% gain in living standards across the economy. With an aging population and the “new normal” in labor productivity, future annual improvements in U.S. GDP are likely to be of the order of 1.5% or less.
This steady decline in U.S. labor productivity can be offset with more capital (think automation)), more technological innovation (think AI), more scale (greater concentration of industry), and superior organization of operations.
This is our challenge going forward.
Peter J. Mooney, Advance
Mooney earned his Ph.D. in economics
from UNC-Chapel Hill.