When it comes to assessing the health of the U.S. economy, policymakers and economists rely on a variety of indicators, such as Gross Domestic Product (GDP), Consumer Price Index (CPI), and the Unemployment rate. However, there is another crucial metric that often goes unnoticed – labor productivity.
Labor productivity measures the efficiency of workers in their job performance. Essentially, it calculates how much output can be produced in an hour of work. Harvard Kennedy School professor and former chairman of the Council of Economic Advisers, Jason Furman, explains that high productivity indicates efficient workers, while low productivity suggests the opposite.
Unfortunately, labor productivity in the U.S. has been on a decline. Prior to the latest data, the country experienced five consecutive quarters of year-over-year declines in worker productivity. This prolonged slump is unprecedented since the Bureau of Labor Statistics started tracking this data in 1948.
The causes behind this productivity slowdown are debatable, but the economic consequences are significant. Greg Daco, chief economist at EY-Parthenon, emphasizes that sluggish productivity directly translates to sluggish growth, stagnant wage increases, and reduced living standards. In essence, it affects every aspect of the economy.
To learn more about labor productivity – how it is measured, its significance to economists, the reasons behind the decline, and its impact on the U.S. economy – watch the video above.
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