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Worker Productivity Growth Hits New Low – What Can Be Done?

Worker Productivity Growth Hits New Low – What Can Be Done?

by Gary D. Halbert
December 20, 2016

  1. Worker Productivity Growth Weakest in Over 50 Years
  2. How to Reverse the Trend of Falling Productivity Growth
  3. What President Trump & Congress Should Consider
  4. Conclusions – We Can’t Let This Trend Continue
  5. Keep All Your Financial Information in One Secure Place


President Obama is spending his last days in office trying to shore-up his “legacy.” He emphasizes that he inherited the worst economy since the Great Depression and most analysts would agree that is true for the most part. Mr. Obama also claims that his policies saved America from another depression and led to one of the longest economic recoveries on record.

Of course, we all know that this recovery, which began in mid-2009, has been the weakest post-recession economic rebound since World War II. There has been much speculation on why this recovery has been so anemic. Conservative critics routinely blame Obama’s big government tax, spend and overregulation policies.

While President Obama’s liberal policies have contributed to slower economic growth, most respected analysts agree that we have a much more serious problem that started long before the current occupant of the White House took office. That is the long-term decline in worker productivity growth which will not be easy to reverse.

Growth in worker productivity has been declining for decades, and this year it is close to zero for the first time since such records have been kept. While there is not widespread agreement among economists as to what exactly is causing this troubling trend, today we’ll look at some of the most likely causes.

If President-elect Trump is serious about boosting the economy, and I believe he is, he must address this foundational problem of falling worker productivity growth. As we go along today, I will discuss some of the leading ideas for reversing this serious trend. Let’s get started.

Worker Productivity Growth Weakest in Over 50 Years

As illustrated in the chart below, growth in US worker productivity peaked in the late 1960s when it was briefly above 3%. While there have been ups and downs along the way, the trend has clearly been lower. And since 2007, the trend has been sharply lower. Worker productivity growth in 2016 has fallen to only 0.5%, a fraction of what it was in the late 1960s.

Worker Productivity

This chart is stunning. Today, the growth of US worker productivity – the amount of goods or services produced per hour – is less than one-fifth of what it was 50 years ago. Let that settle in. This chart illustrates how our economy has been so anemic for the last 10 years. But it doesn’t explain why. So let’s delve into the reasons.

Before I begin the analysis of weakening growth in worker productivity, maybe I should take a moment to explain the term “per capita GDP growth.” Per capita GDP is a measure of the total output of a country that takes Gross Domestic Product and divides it by the number of people in the country. The per capita GDP is especially useful when comparing one country to another, because it shows the relative performance of the countries.

GDP is one of the primary indicators of a country’s economic performance. It is calculated by either adding up the annual incomes of all working-age citizens, or more commonly, by totaling the value of all final goods and services produced in the country during the year.

A rise in per capita GDP also signals growth in the economy and usually indicates an increase in worker productivity. Per capita GDP is often used as an indicator of the overall standard of living, with higher per capita GDP equating to a higher standard of living. Obviously, rising per capital GDP growth is a good thing.

How to Reverse the Trend of Falling Productivity Growth

As everyone knows, President-elect Trump has made some huge promises about reviving economic growth in this country. While I expect that many of his promises are too optimistic to be completely fulfilled, there are a number of things that could be done to strengthen the economy, and specifically to help reverse the downward trend in worker productivity growth.

First, a bit of economic history. From World War II to 1973, labor productivity – output per hour of work in the business sector – grew at a brisk 3.3% a year. Living standards (measured in GDP per capita) nearly doubled in a quarter of a century, or roughly a single generation.

Around 1973, productivity growth slowed, a drought that lasted for about two decades and was accompanied by a lot of angst about the capacity of the US economy to deliver a higher standard of living for the American middle class.

Yet around 1995, productivity growth perked up again, rising to almost post-World War II levels, a boom tied in part to the spectacular drop in the price of computing power – which also helped spread the benefits of the Internet throughout the economy. That spurt lasted for about a decade and then abated.

Since 2004, labor productivity growth has been growing at only 1.3% a year on average, and even more slowly lately as seen above. At the pace Federal Reserve policymakers currently expect the US economy to grow over the next decade or so, it would take more than 70 years, close to three generations, for per capita GDP to double again.

Worker Productivity

The causes of the recent slowdown in productivity growth aren’t entirely clear. Some analysts blame much of it on flawed statistics – the failure of official government data to properly account for the explosion of free Internet services. Ditto for such innovations as mobile phones that have evolved to replace still and video cameras, tape recorders, radios, compasses, flashlights, etc., etc.

Yet it’s hard to believe that flawed government data, although potentially significant, has increased so much in recent years that it explains the entirety of the recent productivity growth slowdown. So if it’s not mostly mismeasurement, what is it?

A couple of culprits emerge from a quick glance at the data. Economics textbooks teach that productivity of workers rises when they have more capital with which to work – more and better tools, machines, computers, software, etc. Yet growth in business investment spending has been substantially slower in the past eight years.

At the same time, there appears to have been less of an economic boost from technological advances in recent years. Whether that is likely to persist is a matter of spirited debate. Northwestern University’s Robert Gordon argues that it will continue – that we shouldn’t expect a return to rapid technology-driven productivity growth, despite all the headlines about driverless cars and artificial intelligence.

Put differently, we should not expect new technologies to match the power of electricity or even air conditioning to transform the economy, Gordon argues. Some other well-known economists disagree, however.

What President Trump & Congress Should Consider

It may take years for scholars to unravel the productivity riddle. But the next president and members of Congress shouldn’t wait for a consensus diagnosis to take measures to reverse the productivity slowdown. So what public

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