Falling Productivity Hits Economic Growth
The employment numbers for August were a bit slower than in July but still very solid, adding 315,000 positions after a revised number of 526,000 in July and 293,000 in June. All were very positive numbers at a time when economic output fell in the first half of this year.
This tells us that labor productivity, or the value of revenue per hour worked, has been sliding — and that’s just what we’ve seen in the first half of the year. Labor productivity fell by 4.1% in the second quarter of 2022 (annualized), after a historic drop of 7.4% in first quarter.
However, in the longer term, weaker productivity tends to lead to slower economic growth over several years. For example, productivity growth suffered during the early 1990s and early 2010s and was followed by below-average gross domestic product growth.
But while productivity has declined in three of the last four quarters, according to the Bureau of Labor Statistics, there appear to be other forces potentially driving this trend. For example, the composition of the hours worked and the value produced has shifted.