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Key Takeaways
- A measure of worker productivity has gotten more reliable lately, as pandemic-era distortions have faded.
- Productivity growth from technological improvements and other advances allows standards of living to increase and wages to rise without inflation.
- The economy’s 3.2% annual productivity growth rate in the fourth quarter was solid, economists said.
If there is one economic metric that shows how healthy the economy is, it might be a measure called labor productivity—and since the pandemic hit that measure has been broken, until very recently.
The Bureau of Labor Statistics’ labor productivity report measures how much value workers create for every hour they work. Over the long run, the more that people can produce in a shorter amount of time because of technological advancements or other improvements, the higher everyone’s living standards become. Higher productivity allows wages to rise without driving up inflation.
Unfortunately, it’s been very hard to tell how well the U.S. economy has been doing productivity-wise. When the pandemic hit, the Bureau of Labor Statistics’ official measure of productivity shot to a record high.
No one believes everyone suddenly got more productive—it’s just that massive numbers of workers got laid off in certain industries that contribute relatively little to the gross domestic product, such as food services.
And as Ian Shepherdson, chief economist of Pantheon Economics pointed out in a commentary Thursday, the reverse happened when businesses began hiring people back—productivity dropped on paper, but it was just a fluke of the way statistics are compiled.
Now that the labor market has settled somewhat back into a normal groove, the productivity measurement is sending more reliable signals: and they’re good ones. Productivity grew at a 3.2% annual rate in the fourth quarter, the bureau said Thursday, a solid rate by historical standards.
“The strong increase in productivity in the fourth quarter capped a solid year of efficiency gains that supported better-than-expected economic growth and will allow employers to increase employee compensation without corresponding price hikes,” Jay Hawkins, senior economist at BMO Capital Markets, said in a commentary.