U.S. Productivity Growth Lags Behind That of Foreign Competitors

American workers aren't boosting productivity as fast as those in other nations (and that's fine).


U.S. workers are not boosting GDP growth nearly as much as some of their foreign counterparts. That's not necessarily a bad thing.

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Today the Labor Department showed that U.S. labor productivity—GDP output per hour—grew at an annual rate of 1.6 percent in the second quarter. That's up considerably, from a negative -0.5 percent in the first quarter, but by some measures U.S. labor productivity growth pales in comparison to that of other countries. As measured by GDP per worker, U.S. productivity for 2012 is projected to grow by 0.8 percent, according to data from the Organization for Economic Cooperation and Development, an international economic organization. That's a far cry from some other major economies. Canadian productivity is projected to grow at 1.1 percent, Japanese productivity by 2.0 percent, and even Spain's troubled economy is projected to see productivity growth at 2.6 percent. Chile comes out on top, at 3.2 percent.

So even while the U.S. outstrips every country in terms of output, it is a different story on the worker-by-worker or hour-by-hour level. Why does it matter? Because productivity is both a key measure and a key factor in how that output grows.

"Labor productivity in itself is sort of the most important underlying factor for growth," says Matthias Rumpf, chief media officer with the OECD. "This is basically where economic growth and increases in prosperity should come from—people do more with less."

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According to the OECD, U.S. workers in 2009 and 2010 increased their output per hour worked by 2.9 percent, putting the country at No. 12 of 35 economies, just between Turkey and Sweden (3.1 percent) and the Netherlands and the Czech Republic (2.3). Meanwhile, at the top end of the spectrum, Korean workers increased their GDP production per hour worked by a blistering 6.6 percent.

It's not often that the U.S. and the Czech economies are considered comparable, but then, productivity can be a confusing measure. Technological innovations often lead to more productivity, helping to boost output. But improved productivity can also signal troubling economic trends. For example, if productivity equals output divided by hours worked, then less working can mean better productivity.

"When productivity growth is driven by a sputtering labor market, rather than faster output growth, the headline figures can be misleading," writes Erik Johnson, U.S. economist at IHS Global Insight, in a commentary on this morning's Labor Department figures.

That means that productivity growth can be a sign of a flagging economy.

"If the economy's in recession, usually labor productivity goes up," says Rumpf. "The least productive workers leave the labor force and [become] unemployed."

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Employers then simply try to do as much as they can with their smaller workplaces.

That may explain a spike in productivity during the Great Recession—at the end of 2008, productivity growth had been negative, but then the figure climbed to a high of 6.8 percent in 2009.

Given how many workers companies shed in the recession, the U.S. may be reaching a point when it will have to add workers to boost output, says Johnson.

"I don't think hiring can slow much further," says Johnson, but he adds that given uncertainties created by the so-called fiscal cliff looming at the end of the year as well as Europe's ongoing troubles, firms may choose safety over growth. "I don't think they're going to respond to this by hiring more workers now."

Danielle Kurtzleben is a business and economics reporter for U.S. News & World Report. Connect with her on Twitter at @titonka or via E-mail at dkurtzleben@usnews.com.