Academic journal article Monthly Labor Review

Productivity in Real Time

Academic journal article Monthly Labor Review

Productivity in Real Time

Article excerpt

Worker productivity is an important economic measure. Economists have long agreed that increased productivity is the principal factor leading to increased living standards for the overall population. As workers become more efficient at producing output, they can be compensated accordingly. In addition, monetary policy officials analyze trends in labor productivity--defined as output per hour worked-to predict gross domestic product (GDP) growth and set interest rates. Because productivity growth rates can vary markedly from quarter to quarter, however, it has proved difficult for policymakers and analysts to distinguish between long-term trends and short-term cyclical trends. In a recent article published in the Federal Reserve Bank of New York's Current Issues in Economics and Finance, bank officials James A. Kahn and Robert W. Rich present a methodology "designed to distinguish between permanent and transitory movements" in productivity growth.

Kahn and Rich apply their methodology to historical productivity data from 1948 to 2005. They note that while productivity increased at an average annual rate of 2.3 percent over that entire period, there were times when it grew slower than that and times when it grew faster. From 1948 to 1973, for example, the average growth rate of nonfarm output per hour was nearly 3 percent per year. From 1973 to 1995, by contrast, the average growth rate was just 1.5 percent annually. …

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