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Trivia Tidbit Of The Day: Part 289 -- U.S. Productivity Gains.


After rising 3.4% in 2004, productivity rose 2.9% in 2005, according to the BLS (.pdf). The headline on this seems to be that 4th quarter productivity fell 0.5%.

So let's talk about productivity, shall we?

Productivity in America, unlike in many other countries, is up at an astounding clip over the past quarter century (.pdf):


Notice those stars. Notice how productivity growth accelerates after those stars. What could have happened in 1994 and 2000 to speed up productivity growth?

Well, the GOP takeover of Congress and President Bush beating Al Gore could be the answer. Or, the implementation of NAFTA and the proliferation of broadband internet and cell phones (and other technologies) could be another answer.

While it would be absurd to credit the Republican Party or President Bush for productivity gains in the American economy, it's probably fair to claim that productivity growth is harmed by policies the Democratic Party espouses. When taxes are too high, when there is a spirit of trade protectionism, when unions run the show, when government does jobs individuals or corporations or small businesses ought to be doing, when racial or gender quotas are used to choose who gets into college or who gets a job, when women are incentivized to have more babies out of wedlock to collect more welfare dollars, when price controls trump the market, and when litigation swamps innovation, the economy cannot move forward. Productivity is stifled.

Although it has been severely underreported, the rate of productivity growth under President Bush has been nothing short of amazing. Ultimately, productivity gains improve our average income, improve our standard of living, improve our profitability, and improve our nation's competitiveness in the world.

So let's celebrate a decade of rapid productivity growth, which contrasts significantly with Europe, Canada, and Japan (.pdf):


And let's not get our panties in a wad over a small retreat in Q4 productivity.

The Dallas Fed (.pdf) & Eurostat (.pdf).


Previous Trivia Tidbit: Government-Mandated Job Security Becomes Job Insecurity.

Posted by Will Franklin · 7 March 2006 09:14 AM


I read something by some dude named Adam Smith:

It is the great multiplication of the productions of all the different arts, in consequence of the division of labor, which occasions, in a well-governed society, that universal opulence which extends itself to the lowest ranks of the people. Every workman has a great quantity of his own work to dispose of beyond what he himself has occasion for; and every other workman being exactly in the same situation, he is enabled to exchange a great quantity of his own goods for a great quantity, or, what comes to the same thing, for the price of a great quantity of theirs. He supplies them abundantly with what they have occasion for, and they accommodate him as amply with what he has occasion for, and a general plenty diffuses itself through all the different ranks of the society....

Productivity gains, whether by Division of Labor or by improvements in technology, are the catalyst that drives economic advancement and the ever increasing quality of life. Think about that. And think about the fact that one American corporation is responsible for what I have heard some estimate as up to 20% of the productivity gains of the last two decades whether directly or indirectly. Add in this:

While everyone is nittering and nattering about trade deficits, the real news is happening under their collective noses. Just look at the retailing sector. According to new data from the Bureau of Labor Statistics, there was a spectacular jump in productivity in the retail sector in 2004, as efficiency rose across the board. Just take a look:

In 2004, retailing turned in a productivity performance almost double its medium term average (1987-2004). The biggest winner was grocery stores. Some laggards, not shown on the table, include department stores, which barely beat their historical average.

Ever notice how the price of cell phones and damned near everything that Walmart sells has dropped over the last 20 years, yet groceries have not? Well, now that Walmart is entering the Supercenter and Neighborhood Market arena and the union grocery stores that overpay employees are having to compete, we see a huge increase in productivity. And that translates into greater buying power for consumers ad greater prosperity.

Posted by: Justin B at March 7, 2006 09:25 AM


More for you here:

"Surprisingly, the primary source of the productivity gains of 1995 to 1999 was not increased demand resulting from the stock market bubble, as some economists have claimed. Nor was information technology the source, though companies accelerated the pace of their I.T. investments during those years," reports a summary of the findings published in The McKinsey Quarterly. "Rather, managerial and technological innovations in only six highly competitive industries -- wholesale trade, retail trade, securities, semiconductors, computer manufacturing and telecommunications -- were the most important causes." (The journal is online at www.mckinseyquarterly.com, and the entire study is at www.mckinsey.com/knowledge/mgi/feature/index.asp.)

Competition and better management, not simply the spread of computers and the Internet, made the difference. Nowhere was that clearer than in retailing.

From 1987 to 1995, labor productivity grew an average of 1 percent a year. From 1995 to 1999, it grew 2.3 percent a year. This big jump, combined with increased employment, meant that real output per capita grew nearly 4 percent a year -- an extraordinarily fast rate, comparable with those of some Asian economies during their period of economic takeoff.

A quarter of that increased productivity came from retailing. And about a sixth of the improvement in retail productivity came from general merchandise, most of it directly or indirectly from Wal-Mart.

"More than half of the productivity acceleration in the retailing of general merchandise can be explained by only two syllables: Wal-Mart," writes Bradford C. Johnson in a McKinsey Quarterly article "The Wal-Mart Effect." As Wal-Mart became more and more efficient, its share of the market expanded, thereby applying its efficiency to a larger portion of total purchases. And Wal-Mart's rivals began to emulate its highly productive practices.

But we should hate Walmart not hail it for increasing productivity.

Posted by: Justin B at March 7, 2006 09:28 AM