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)