Poor Productivity Growth Persists, But Opportunity for Change is at Hand

By at 2 February, 2017, 1:11 pm

by Raymond J. Keating-

It usually doesn’t get enough attention, but labor productivity growth warrants serious consideration. After all, enhanced productivity means, ultimately, higher incomes for workers, as well as improved profitability for businesses. Productivity growth is another win-win in the free enterprise system.

Unfortunately, for more than a decade now, but especially over the past six years, U.S. productivity growth has been simply abysmal. (See SBE Council’s report released in August 2016 titled “Gap Analysis #4 – The Productivity Shortfall: Causes and Results”.) And according to the latest report from the U.S. Bureau of Labor Statistics, poor productivity growth continued in the fourth quarter of 2016 and for the entire year of 2016. (As noted by the BLS, “Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked of all persons, including employees, proprietors, and unpaid family workers.”)

Fourth quarter nonfarm labor productivity grew by 1.3 percent in the fourth quarter of last year, and for all of 2016, productivity barely inched forward by 0.2 percent. To put this in perspective, in the post-World-War-II era, annual productivity growth has averaged 2.1 percent.

What’s the problem?

In order for productivity to increase, private investment and innovation must be robust. Unfortunately, private investment has lagged badly for a decade. (See SBE Council’s analysis on a shortfall in private investment in Gap Analysis #2: A Lost Decade for Private Investment and the SBE Council analysis on the latest GDP numbers.)

With a new Congress and presidential administration looking to reverse course on tax and regulatory policies from the Obama years, that is, implementing tax and regulatory relief and reform, the potential to see increased private business investment, improved productivity, enhanced economic growth, and higher incomes can improve markedly with the enactment of these policy changes.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP: The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.


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