Making less with more
From The Economist
America’s productivity growth has slowed. Does that matter?
THE good news about America’s economy is that jobs are plentiful despite slower growth and the housing blues. Some 180,000 new jobs were created in March and the unemployment rate fell to 4.4%, three-tenths of a percentage point lower than a year ago. With employment and wage growth strong, consumers are unlikely to stop spending and throw the economy into recession.
That is not all cause for celebration, however. The drop in the jobless rate at the same time as the economy is slowing implies that the growth in productivity—the amount workers produce in an hour—is waning. If this proves to be a permanent shift, slower productivity growth bodes ill for inflation and living standards.
Few associate America with limping productivity. Central to its success over the past decade has been its “productivity miracle”, the sudden acceleration in workers’ efficiency in 1995. After advancing at a measly 1.5% per year for more than two decades, productivity growth soared to an average of 2.5% a year in the late 1990s and over 3% a year between 2002 and 2004.
This spurt set America apart from other rich countries. But between mid-2004 and the end of 2006, the growth in business output per hour outside agriculture, the most common gauge of worker efficiency, slowed to an annual rate of just 1.5%, on average. Judging by the recent jobs figures, its growth in the first few months of 2007 may be lower still.