Labor productivity in the U.S. economy dropped by −1.7% in 2022 as a whole, according to a March 1 report by the Labor Department, which only a month earlier had thought it dropped by “just” −1.3%. Thus after 15 years of annual productivity growth bouncing between zero and 2% at most, it has gone negative in a year in which the Federal Reserve started hiking interest rates allegedly to cool inflation in a “hot economy.” The productivity readings show the economy, instead, in a deepening recession.
Underlying the merely indicative disappearance of labor productivity growth, is the more important drop to near zero, since 2005, of growth in “total factor productivity” (TFP)—economic growth accounted for by technological advance, particularly in basic economic infrastructure. The American economy’s TFP growth, which averaged about 1.75% per year in the 1990s, dropped below 1%/year after the great financial crash, and to an average 0.5% in the past decade, according to studies done by the IMF.
Connected to the 2022 productivity plunge are the sharp upward revisions which the Labor Department made on March 1 to its estimates of the average “unit cost of labor” in industrial and manufacturing processes. That unit cost rose by 6.3% in 2022, the Department now estimates, almost 2% more than it said a month earlier. Hourly compensation rose by only 4.4%—but workers are producing less, in less and less productive employment, making it cost more to employ them.
