Let Us Now Celebrate America's Incredibly Low Productivity

Hours and wages both increased despite the productivity dip.

Put your feet up, America.

Just released numbers from the US Bureau of Labor Statistics shows U.S. worker productivity declining during the first three months of the year at a 0.6 percent pace, as measured by GDP per hour worked. That’s not as steep as the 1 percent drop that was the initial estimate reported for the quarter. But still.

It was the second straight negative reading, and in keeping with the post-Great Recession weakness that has caused certain economic observers to wring their hands raw. They should take a page from their proletarian compatriots, and chill.

Why? Well, because there was also a load of good news included in today’s productivity update. Hours and wages both climbed, with inflation-adjusted U.S. hourly compensation rising at a 4.2 percent rate in the first quarter. That’s the latest in a string of solid readings on pay after a long spate of flat wages.

Indications of rising hours worked along with peppy wages are worth celebrating, even if they’re partially to blame for the ongoing weakness in U.S. productivity. Productivity is conventionally described, as it was by the Wall Street Journal (paywall) today, as the “the main factor behind the economy’s ability to lift Americans’ long-term living standards.”

Well…that’s only kind of, sorta, true if you define living standards as GDP-per-capita. I don’t. Employers don’t dole out per capita chunks of GDP to their employees every two weeks. In the United States, it’s wages and other forms of compensation that really determine standards of living.

In other words, it’s not just productivity that determines how well people within an economy live. It’s how the fruits of that productivity are shared. And for the last few years, workers have had to tear at the fatty, leftover gristle of GDP after employers and corporations have taken the choice cuts. Since the 1970s, the vast majority of the benefits of improving productivity have gone to employers rather than workers.

This is a big reason why US median household income is essentially where it was 25 years ago.

As an aside, low productivity isn’t ideal. The best situation for the U.S. economy would be rising levels of hours worked, compensation and productivity, which would produce a bigger pie—and bigger slices of pie—for everyone. But we don’t live in an ideal world. So for right now, after the recent period of flat wages, I don’t mind of pay outpaces productivity for a bit. After decades of lagging, a period of catch-up would be in order.