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More Productive, Less Prosperous

Joseph Hines

American workers continue to give more and get less in our tepid recovery. The Labor Department released its second quarter productivity report yesterday showing workers contributing more hours and effort, even as their wages have stagnated and overall employment (and underemployment) stalled. The report finds that “nonfarm business sector labor productivity increased at a 1.6 percent annual rate during the second quarter of 2012,” which entails “increases of 2.0 percent in output and 0.4 percent in hours worked.” 

Productivity roughly measures worker output of goods and services. Before the recession, an increase was a positive sign, as it was accompanied by a rise in workers wages, but this time is different. The only benefit has been for employers, who earn increased profits from a more productive workforce.

Jared Bernstein aptly describes the implications:

Another is to point out that policy is not helping at all to ensure that the benefits of productivity growth are more broadly shared. And that, in turn, is also making it a lot harder to “grow the economy from the middle-class on out. 

Bernstein also constructed a telling graph showing the differences between the past three recessions:

Further, Michael Feroli, the Chief U.S. Economist at JP Morgan, suggests that this trend is due to the growing fears of office workers that they’ll lose their jobs. In an interview with BusinessWeek, Feroli states that “workers are still scared, and so probably could be induced to work harder or longer than usual out of fear of losing their jobs.” If anyone should know why workers are afraid its the prognosticator in residence at JP Morgan where rampant risk-taking continues to threaten the global economy. As a result of the stagnant labor market, rising productivity has been transformed from an indicator of a healthy economy to a measure of workers' fear of losing their jobs. 

Yesterday’s report shows the gap between productivity and income growing in its anomalous trajectory. Not only are workers not being compensated for increased work and output, the increase in productivity is partly a direct consequence of the dysfunctional labor market. There’s no reason these trends will be reversed without policy to protect workers and create demand. Otherwise, Americans will continue to be forced to work harder, for more hours, and less pay.