American workers didn’t get much more productive last year, writes The Wall Street Journal (Feb. 4, 2022). But this year could be different. Productivity, as measured by how much the average worker produces in a typical hour, grew at a 6.6% annual rate in the 4th quarter from the previous quarter. For the whole of 2021, productivity only rose 1.9%. That was less than 2020’s 2.4% productivity gain, and the 2% in the pre-pandemic year of 2019.
The U.S. could really use a productivity boost right now. As we point out in Chapter 1, the more a worker can produce in an hour, the lower the labor costs for production go. When productivity growth is high, businesses can sell more, pay workers more and increase profits while leaving prices unchanged.
Better productivity might be on the way. One reason is that the pandemic precipitated changes in the way people work that, if the Covid eases this year, could pay big dividends. The ability to work from home when that is the better option and head into the office when it isn’t, or to meet virtually sometimes and in-person others, can make people far more efficient. The productivity payoff from online menus and ordering systems many restaurants have put in place may arrive as the restaurant business is now recovering.
But the supply chain snarls and product shortages that have beset the economy since the pandemic hit have been, among other things, huge time wasters. If goods start moving more freely, a lot of workers could suddenly become much more productive. And to the extent that car manufacturers and others have products that are fully built except for some hard-to-obtain semiconductors, the installation of some chips could create a real productivity miracle.
Moreover, with labor hard to obtain and demand strong, businesses have some of the strongest incentives in years to figure out ways to be more productive. Given the alternatives of losing sales or seeing labor costs take an ever bigger bite out of profits, many of them will come up with ways to be more efficient that they never would have when wages were stagnant and economic growth was mediocre.
Classroom discussion questions:
- How are restaurants increasing productivity? Supermarkets? Airlines?
- What is the difference between productivity and multi-factor productivity?