November 06, 2003

Third Quarter Productivity

The third quarter productivity estimate is out:

The Bureau of Labor Statistics of the U.S. Department of Labor today reported preliminary productivity data--as measured by output per hour of all persons--for the third quarter of 2003. The preliminary seasonally-adjusted annual rates of productivity growth in the third quarter were: 7.4 percent in the business sector and 8.1 percent in the nonfarm business sector.

Productivity increased 7.4 percent in the business sector, as output grew 8.8 percent and hours increased 1.3 percent. The 8.1 percent increase in nonfarm business productivity also reflected an 8.8 percent growth in output, with a 0.7 percent rise in nonfarm business hours.

In manufacturing, productivity increases in the third quarter were: 8.6 percent in manufacturing, 14.7 percent in durable goods manufacturing, and 2.3 percent in nondurable goods manufacturing....

Posted by DeLong at November 6, 2003 07:05 AM | TrackBack


So far, the magic of productivity growth is pretty lop-sided. Unit profits for non-financial corporations were up 17.6% y/y in Q3, while real compensation in the sector was up just 1.1%. For all non-farm workers, compensation is up just 0.5% on the year, despite a 4.7% rise in productivity. From a year ago, durables output is up just 0.1%, while hours are down 5.6%. Overall, output is up 4.1% while hours are down 0.6%. I suppose that helps explain the imbalance in earnings shares as a result of this latest productivity "miracle".

Posted by: K Harris on November 6, 2003 07:34 AM


Yeah wage increases are non existent. We have a salary freeze in place where I work. But you know what, hardly anyone seems to care. We just really would like to see the job market improve.

Posted by: Joe Blog on November 6, 2003 08:07 AM


Don't want to overinterpret your comment Joe, but ... employment agencies and consultancies are reporting the highest level of job dissatisfaction on record. Many workers have gone a long time without a pay hike, and many of those have come to the conclusion that the way to catch up quickly is to find a new job. That requires an improved job market, as you say. Good luck.

Posted by: K Harris on November 6, 2003 08:31 AM


One variable I watch is per capita real income growth (not real DPI that includes distributional elements) and it is showing zero growth -- this normally only occurs in a recession. It is driven by productivity, terms of trade and percent of population employed. The series is showing that the gains in productivity have been roughly offset by weak employment so the net gain in terms of the overall standard of living is zero.

Posted by: spencer on November 6, 2003 08:36 AM


But top management ain't experiencing a pay freeze. And, they pay lower taxes on their $10 million plus packages to boot.

Posted by: Cal on November 6, 2003 08:44 AM


K Harris,

As usual you are right on target.

Posted by: Joe Blog on November 6, 2003 08:52 AM


I love how classical economic theory says workers can only receive raises if there are increases in productivity. What has happened is that management has pocketed the results of these gains rather than spread them among their employees, which goes to the fundamental fallacy behind the theory that productivity gains drive wages: pay rates are not set by the marketplace, they are set by individual employers, who pay according to their own whims vs. how productive their workers are.

Posted by: tom mangan on November 6, 2003 10:13 AM


" rates are not set by the marketplace, they are set by individual employers, who pay according to their own whims vs. how productive their workers are."

One could make the same claim about prices, and that of course would be silly. Just so is your argument.

Posted by: Keith M Ellis on November 6, 2003 10:39 AM


Tom is correct. For over 25 years, with a small reprieve in the late 90s, real median family income has been stagnant. That has been maintained only by a substantial increase in the number of two income families. Wages have fallen. At the same time, the wealth held by the top 1% and especially in the top 0.1% has skyrocketed.

Some of that shift in wealth is due to asset appreciation, especially in the stock market. Some is due to rising pre-tax income. Some is due to falling upper income tax rates. Almost all productivity gains for a quarter of a century have gone to enriching the richest fifth of Americans.

The saddest thing is that Americans have become whipped pups, accepting almost any lie, almost any crooked dealing, almost any imposition with barely a whimper.

Posted by: Charles on November 6, 2003 10:45 AM


Well the marketplace has its place in wage setting, but since there is unemployment it will not drive wages up. What is evidently false is that productivity by itself raise wages. Productivity raises the commercial margin but if the market does not present with competition for workers their salary won't rise.


Posted by: Antoni Jaume on November 6, 2003 12:15 PM


Why have employees been unable to participate in the income garnered from productivity gains? I believe that this is the inevitable result of an oligopolistic market for labor, which in turn was caused by the state's sanction and encouragement of the corporate form of ownership.

"The inequaliy of bargaining power between employees who do not possess . . . actual liberty of contract, and employers who are organized in the corporate or other forms of ownership association substantially burdens and affects the flow of commerce . . . by depressing wage rates and the purchasing power of wage earners . . . ." National Labor Relations Act.

Posted by: joe on November 6, 2003 12:15 PM


A view from street level: I run a small tech firm in Seattle (hard hit in the downturn), we hired new people last month, will again this month, and again at the start of the year. And yes, they've all been hired here, not overseas.

Another positive (for me): I'm hiring these resources and paying them a good competitive wage, but not the inflated wage I'd pay them 3 years ago, for their tech skill set.

All of our new people were out of work for apx. 1 year, before hiring on here. Just an FYI...

Posted by: dancan8 on November 6, 2003 12:28 PM


You do not have to come up with political theories about wage distribution to explain what is happening. It is much more a return to capital, i.e, education while those without an education have to compete with foreign labor. There are extremely strong economic forces pushing the US in the direction of greater wage inequality. But I see that as another problem with the Bush Admin policies. Rather than trying to offset these trends they are reinforcing them. The results will be to turn us into an upstairs-downstairs society and I for one do not find that desirable.

Posted by: spencer on November 6, 2003 01:59 PM


Spencer is correct. Our trade theories suggest that trade tends to equalize relative costs between trading partners. (The Economists' Big Mac index shows that there is some real world disparity.) Free trade then should tend benefit those economic factors that are relatively rare in our trading partners while alternately disadvantaging those factors that are relatively plentiful in our trading partners. Education and capital are relatively rare in much of the world while basic labor is relatively plentiful. This could explain part of the stagnation in median (?) income. It would also suggest that inequality will increase as trade integration increases.

Posted by: Stan on November 7, 2003 12:35 PM


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