Productivity, measured as nonfarm business employee output per house, also fell in both quarters, decreasing by 7.4% and 4.6% quarter-on-quarter. These were the weakest back-to-back readings since records began in 1947.
Source: Nobel prize winner Phelps says U.S. needs 1950s-style productivity boom
Productivity is a measure of unit output per unit input. We like to see productivity improving over time – as we work smarter, with better trained workers continuously improving processes, and through adoption of technology per worker.
If productivity is going down, then the “value” of each work unit costs more – a la inflation. Similarly, if wages go up faster than productivity, then the “input” increases in cost relative to the output.
The U.S. government recently poured enormous amounts of money into the economy – which should have translated into capital investments that would lead to improved productivity. But productivity improvements did not occur – indeed, productivity has gotten worse.
As this column notes, each “crisis” is met by more government spending and more accumulation of debt. After the crisis is over, the government has taken on more debt, productivity and wage growth are weaker, and inflation is higher. Long term, inflation becomes a tax on everyone’s assets, leaving everyone worse off. (Inflation is a way that government can pay off past debt with future deflated dollars – it’s a stealth wealth tax on everyone.)
There are many moving parts in all this, many others not mentioned here, so use caution in interpreting that.
In fact, perhaps all of the “remote work” and “work from home” did not – actually – yield productivity improvements, as some proponents claimed, but has instead harmed productivity? At least one study makes that claim, saying that at-home workers are spending more than an hour a day on “productivity theater”, intentionally responding to emails at odd hours to make themselves look busy.
Bottom line: If productivity continues dropping, long term, then the economy weakens and in aggregate, we are worse off. If productivity reverses course and improves, then in aggregate, we will be better off.
