South-Western College Publishing - Economics  
Productivity Slackens
Subject Productivity
Topic Productivity and Growth
Key Words Productivity. Growth, Standard of Living, Inflation
News Story The US Commerce Department reported that the productivity of American workers slackened in the first quarter of 1998 to an annual rate of 1.1 percent. Over the same period last year, productivity growth measured 1.4 percent. However, the current productivity figure is significantly lower when compared with the 1.8 percent annual average for the years 1996 and 1997.

Productivity growth is an important measure of an economy’s well being. It is a vital component of our standard of living. Strong productivity growth reduces inflationary pressures and stimulates economic growth. An employer, for example, can raise workers’ wages while holding prices, with the potential of increasing sales. A key reason for the US economy’s current high-growth, low-inflation performance was the increase in productivity growth from 1 percent in the 1974-1995 period to the 1.8 percent level for 1996–1997.

The decline in productivity growth was concentrated in the manufacturing sector. Productivity growth was .7 percent, the lowest rate in 4 ˝ years and a fraction of the 4.6 percent growth in 1996–1997. One explanation for the decline is that the requirements of an increased workload could only be met by increased employment.
(Updated June 16, 1998)

Questions
  1. How is productivity measured?

  2. What factors were responsible for the increase in productivity from the 1974-1995 period to the 1996-1997 period?

  3. What is the impact of low productivity on the economy’s standard of living?

  4. What can the government do to increase productivity?
Source Source: Associated Press, "Productivity Growth Shows Slight Decline," The Washington Post, June 5, 1998.

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