This is just an artifact of the measurement process. Energy prices plus some global supply chain issues has spiked inflation. That makes (1) everything more expensive and (2) under measures output due to inflation adjustments.
Plumbers aren't plumbing slower than they were before. They look less productive because they have to spend more on gas. And the $100 an hour, or whatever, of economic output is discounted more than it should be because of how we measure inflation.
This is an important thing to realize, which is that (almost) all productivity everywhere in the globalized economy is really just an arbitrage between energy and labor prices. For the past ~200 years, if you could find a way to do some job with less labor by burning coal or electricity, you would do it and keep the gains. This is because energy has been extremely (some would say artificially) cheap the whole time. The only way to keep productivity anywhere near 20th/early 21st century levels going forward will be to arrange for this cheap energy to continue.
Good points. I'd add another factor: poor organization can crush measures of per-person productivity, not because individual workers are exerting more or less effort, but because of bottlenecks, duplication, and general mismanagement. One outfit can be running around frantically 24/7 trying to fix the latest breakdown, with resulting low productivity, and another can just be humming along, calm and relaxed, but more productive overall because their systems are better designed.
Case example: the airline industry took COVID bailout money and used it for stock buybacks, while laying off large numbers of pilots and other employees due to low demand for air travel at the height of the pandemic. As demand surged recently, more and more flights were canceled (~75% decrease in number of flights) and this created a huge revenue drop so technically, 'productivity per worker' declined. Layoffs resulted in a 'increase in per-worker productivity', but now, mnay airlines don't have the necessary staff to run their businesses smoothly, so their revenue is suffering, passengers flights are getting cancelled, and labor is calling for strikes.
The good people at the US Bureau of Labor Statistics are aware of this fact which is why their measurements are price adjusted. I always wonder whether people who make these comments think the people over there haven't taken a stats 101 class.
They definitely make adjustments and I'm sure they are very smart, but given that the productivity and inflation charts change trajectory at about the same time, I think the it's reasonable to suspect it's a measurement artifact rather than everyone reaching a breaking point all at once?
The BLS isn't measuring the number of pipes plumbed. They're counting the dollars that plumbers make and using that number to determine their output. To compare that output across time you have to discount for inflation. If you calculate too high a rate of inflation then you discount too much
unit labor costs take consumer prices into account but not the productivity number. Productivity is output divided by hours worked and there is no price adjustment described for the output number unless I missed something in that link.
Businesses may also be more staffed up than the same quarter a year ago.
Productivity is up over last quarter but down compared to the same quarter a year ago, when businesses were complaining about being understaffed (the enhanced unemployment ended in September of Q3 2021). Did the delta outbreak also depress hours worked and juice the health sector's contributions to GDP or hurt it because there are more profitable procedures?
All I can say is output is not adjusted for prices.
Yes, the word recession seems less than appropriate currently. The universe is capable of far larger variety than our human vocabulary after all. Having been a first in 100 years pandemic, this last pandemic occurred without precedent in modern history. We probably don’t have a good model for what we’re going through and won’t for years or longer.
That author found much of the latest growth in profits attributable to reduction in corporate taxes and not much else. This latest might be a reversion to a market preference for lower P/E ratios. That would look like lower productivity even with the same earnings and thus actual productivity, a clear contradiction.
But be careful here. The next thing to write about after headlines of lowered productivity are lowered wages.
Plumbers aren't plumbing slower than they were before. They look less productive because they have to spend more on gas. And the $100 an hour, or whatever, of economic output is discounted more than it should be because of how we measure inflation.