2006 U.S. Labor Productivity Growth at the Lowest in More than a Decade

U.S. and European productivity growth was relatively slow in 2006, U.S. productivity grew just 1.4% in 2006 while the EU increased at at1.5%, according to preliminary estimates by The Conference Board. U.S. labor productivity growth in 2006 was the lowest in more than a decade. 

U.S. labor productivity slowed for the third consecutive year in 2006 and was well below that of the other two largest advanced economies in the world, Germany and Japan (2.5% in 2006). The latest productivity estimates, running up to the third quarter 2006, suggest that most of the U.S. slowdown comes from service sectors.

This may not really mean that the US is falling behind, according to IBD analysis: 

A study by economists Ian Dew-Becker and Robert Gordon for the National Bureau of Economic Research notes that from 1995 to 2004, U.S. total labor productivity grew on average 73% faster than the EU's (see chart).

Projections by the Census Bureau show that by 2025, America's working population will have increased by 55 million. Western Europe's, meanwhile, will have shrunk by about 10 million.

In 2005, the average American worker produced close to $81,000 in real gross domestic product; the average European produced $66,000 , a difference of $15,000, or 22%.

Other significant findings from the TCB report include:

  • Productivity recovery in Japan is strong for the third consecutive year, reaching 2.5% in 2006, led by a better export performance of the manufacturing sector. 
  • Productivity growth in developing economies was strong, with India and China growing at around 7% and 9-10% respectively in the past two years. 
  • The UK continues to enjoy steady growth in labor productivity, 1.1% in 2005 growing to 1.7% in 2006, but the UK remains outside the top 10 most productive economies.

According to Dr. Bart van Ark, Director of International Economic Research at The Conference Board: "Over the past decade, information and communication technology has been a key driver of global productivity growth, but with these latest numbers one begins to wonder whether ICT's contribution has peaked. The significant fall in U.S. productivity growth is unlikely to be purely cyclical, and the modest European revival of productivity also points to the limited impact of technological change and patchy liberalization of product and labor markets in many countries."

However, according to the report, the "lull" in productivity could also be due to a transition phase to a second wave of ICT-driven productivity growth still to come.

Gail Fosler, Executive Vice President and Chief Economist of The Conference Board, said: "Today's business models have reached a certain level of technology saturation, and incentives for creating a second wave of applications are weak. But there are many industries, in particular in services, in which the potential for more productive technology use seems large. Future productivity gains may be waiting for a new generation of business applications."

Sources and Related Commentary:

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