PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Productivity Moves Up in 2019, But Still Lags Historical Average

By at 6 February, 2020, 3:54 pm

by Raymond J. Keating-

The U.S. Bureau of Labor Statistics reported that nonfarm business labor productivity grew by 1.4 percent in the fourth quarter of 2019, and by 1.7 percent for all of 2019.

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 by all persons, including employees, proprietors, and unpaid family workers.”

And productivity is central to economic and income growth.

The good news is that the 1.7 percent productivity growth in 2019 was the fastest since the post-recession years of 2009 and 2010. If one factors out the impact of the recession, then it was the fastest productivity growth since 2007.

Unfortunately, productivity growth has lagged the historical average since 2006. Consider that during the post-World-War-II era (from 1948) to 2005, annual productivity growth averaged 2.3 percent. However, from 2006 to 2019, it averaged only 1.4 percent. And if we get clear of the recession and its aftermath, productivity growth averaged a woeful 0.9 percent from 2011 to 2019. (See the following chart.)

Source: Federal Reserve Bank of St. Louis, FRED

Indeed, slow productivity growth explains much of the sluggishness in our economy since the last recession, as well as underwhelming compensation gains.

Therefore, the U.S. needs to further gear up pro-growth policymaking – such as substantial and permanent tax and regulatory relief, advancing free trade, and reining in the growth of government – in order to incentivize entrepreneurship and investment, which are vital to productivity growth.

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

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