Explore further current and historical data for Labor Productivity and how it relates to the Inflation Rate (CPI), the real GDP, and wages.
Current and Historical Data for Labor Productivity
Review the current and historical data for Labor Productivity, by quarter at Economagic.com.
Labor Productivity and the Consumer Price Index: Annual Percent Change Relative To Same Period Last Year
We can see in the diagram and table below that there is generally an inverse relationship between productivity and inflation. Economic theory would lead us to expect that inflationary pressures will be stronger when productivity growth rates are low. For example, if the growth rate in labor productivity were to fall to zero, then there is no increase in output per hour that could be used to fund pay raises. Consequently firms would have to raise prices, which can trigger accelerated inflation. Likewise wage increases are less likely to trigger a rise in inflation when productivity growth rates are high. Since the late 1990ís labor productivity has been growing at a faster rate than in the preceding 20 years, which has helped contain inflationary pressures.
Labor Productivity and Real GDP: Annual Percent Change Relative to Same Period Last Year
As we can observe from this diagram, Labor Productivity and real GDP tend to move together. . From economic theory we know that increasing labor productivity is a key source of economic growth. There has been a general rising trend in labor productivity since the mid-1990's that may be attributable in part to capital deepening in computer and telecommunications technology. You can also see that productivity growth rates have increased sharply near the end of each of the four U.S. recessions since 1980, in part because firms are likely to ask existing workers to work harder and longer rather than hire new workers until it is known that improved economic conditions will persist. It is interesting to note that gains in labor productivity tend to be a leading economic indicator of recovery from recessions, which is evident in the diagram.
Labor Productivity and Real Compensation: Annual Percent Change Relative to Same Period Last Year
Microeconomic theory suggests that the rate of change in real wages will be determined by the rate of change in Labor Productivity. As long as the prices of the goods and services produced by labor are not falling, then higher labor productivity increases the amount that firms are willing to pay for labor in the labor market. The diagram below relate labor productivity to real wages, and you can see that labor productivity and real wages tend to move together. Productivity does not appear to explain all of the variation in real wages, as is made clear by the decline in real wages during the late 1980's, when labor productivity was growing. The prosperous mid- to late-1990s saw rapid increases in real compensation, fueled in part by rising labor productivity. The forces of globalization – including greater capital mobility and the increasingly international scope of labor markets – may explain why real compensation growth in the US may stagnate in the context of healthy labor productivity growth rates.