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Thursday, February 03, 2011

Solid Productivity Data Positive for Economy

The U.S. Bureau of Labor Statistics released solid labor productivity numbers today.

During the fourth quarter of 2010, nonfarm business labor productivity increased at a 2.6 percent annual rate. That followed on a 2.4 percent gain in the third quarter.

And for all of 2010, productivity gained a solid 3.6 percent, following 3.5 percent in 2009.

(As noted by the BLS: “Labor productivity is calculated by dividing an index of real output by an index of the combined hours worked of all persons, including employees, proprietors, and unpaid family workers.”

At the same time, unit labor costs fell by 0.6 percent in the fourth quarter, and were down by 0.1 percent in the third quarter. For all of 2010, unit labor costs declined by 1.5 percent, which followed a 1.6 percent decline in 2009. The Wall Street Journal reported: “That is the first time since 1962-1963 that unit labor costs fell in two consecutive years, a Labor Department economist said.”

(As noted in the report: “BLS defines unit labor costs as the ratio of hourly compensation to labor productivity; increases in hourly compensation tend to increase unit labor costs and increases in output per hour tend to reduce them.”

It is not surprising that in a down economy, businesses were squeezing more productivity out of its workforce, while at the same time holding down labor costs. That’s the type of action businesses take to survive in tough economic times.

Over the longer run, rising productivity is a big plus for workers, since incomes rise when productivity improves. These recent trends will help strengthen economic and income growth in the future.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

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