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Declining US Productivity Explained

Declining US Productivity Explained
(Oleksandr Zozulinskyi/Dreamstime)

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Thursday, 21 September 2017 04:55 PM Current | Bio | Archive

According to the Bureau of Labor Statistics (BLS) the productivity in the manufacturing system shrank from 4.7percnt increase per year to only 1.6 percent between the years 2000 and 2016 (it even went as low 1.2 percent in the nonfarm employment sector). This has vexed our pundits and learned economic professors.

I think they are entitled to an explanation.

First, let me explain a curious phenomenon: During the years 1995 and 2004 we saw a massive outsourcing through relocation of labor and capital to countries such as India and China.

As a result the U.S. labor force shrank from about 18 million to 14.3 million, a drastic loss of 20 percent. Yet, during the same period, the yearly U.S. productivity rate increased from 1.5 percent per year to 2.6 percent 73 percent increase in labor efficiency.

How could this be? Here we have 20 percent less workers, yet the percentage of output in goods increased 73 percent. To answer this riddle let me explain how productivity is defined by the government: It is the ratio of labor (capital) versus GDP output.

In somewhat simpler terms it is related to the number of workers needed to produce goods.

Here is an example: A small manufacturer has 10 workers and produces 100 machines. One day, he decided to have 10 machines produced in China, saving two employees in his shop. Now his efficiency increased by 20 percent according to the government system since he now needs only 8 employees to sell 100 machines. The truth is that there are still 10 people being paid.

However, the government does not count foreign workers. This happened when in the 1995 to 2004 period the rate of productivity increased by 73 percent above previous numbers. The real U.S. worker productivity would have stayed around 2.2 percent or less if foreign worker would have been counted. This is even more astonishing since the gross domestic product figures during this period remained essentially flat.

Just consider, the remaining 80 percent of the previous labor force had to work so much harder to increase their productivity rate by 8 percent each year over a past year in order to match the stated productivity increase. I am sure the labor unions would never stand for it.

Conclusion: the cited productivity figures are incorrect.

Another curious productivity report occurred covering the years from 2010-2012. Coming out of the 2008 financial crisis, the U.S. labor force, according to BLS, increased each month by between 150,000 and 200,000 persons; a yearly increase of about 17.5 percent.

Yet the GDP during this period (Inflation corrected. Source: World Bank) stayed flat at around 2.4percent per year. This would indicate an actual productivity decrease since here are more active workers yet no changes in the yearly GDP numbers!

Certainly, here is a rate of productivity increase that is certainly less than the official rate of 1.6perent (1.2 percent if you include the service section). This is curious indeed.

The explanation might be found in peoples work habits. During the last six years, the smart phone penetration increased from27 percent to 79 percent, an increase of 140 percent.

We all encounter people, whether standing, driving, riding in elevators or even dining in restaurants that are using their smart phones. It certainly stands to reason that this nearly constant need to use smart phones has penetrated the work place, consuming countless hours of otherwise productive time.

However, there is another explanation, which is: A good deal of the re-employed workers wound up in service jobs and therefore did not produce goods which otherwise would have been counted in productivity statistics.

In case you wonder why the U.S. Gross Domestic Product index keeps sliding down, referrer to my blog entitled "GDP Provides Valuable Lessons in Economic History," posted Jan. 5, 2017 on Newsmax.com.

Hans Baumann is a licensed engineer in four states and a member of Sigma Xi, the Scientific Research Society. He is an adviser to the dean of the University of New Hampshire Business School. Dr. Baumann has published manuals on valves and was a contributor to many works including the "Instrument Engineers' Handbook" and the "Control Valves Handbook." He has also published several books on business management and German history, including "Hitler's Escape," which suggests that Adolf Hitler did not commit suicide and survived World War II. In his latest book, "Atomic Irony" he proves that the Hirshoma Atom Bomb contained captured German Uranium. For more of his reports, Go Here Now.

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According to the Bureau of Labor Statistics (BLS) the productivity in the manufacturing system shrank from 4.7percnt increase per year to only 1.6 percent between the years 2000 and 2016.
bls, labor, world bank
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2017-55-21
Thursday, 21 September 2017 04:55 PM
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