By James D. Agresti
May 13, 2016
U.S. productivity growth, the greatest determinant of living standards, has been lower for the past five years than any five-year period on record. New data from the U.S. Bureau of Labor Statistics shows that productivity growth has averaged 0.4%per year over the past half-decade. This is 82% below the average of the prior six decades, which is as far back as this data extends.
The importance of productivity growth has been described in blunt terms by:
Federal Reserve Chair Janet Yellen, who stated that “the most important factor determining living standards is productivity growth.”
the Congressional Budget Office (CBO), which reported that “a small change in the growth of productivity” over an extended period can inflict more harm than recessions, because lower productivity reduces economic “output by an ever-increasing amount.”
U.S. Bureau of Labor Statistics economist Betty W. Su, who wrote that “high productivity growth” affords people with a “higher standard of living and quality of life.”
Productivity growth is especially vital for people with low incomes, because low-wage workers in highly productive nations have much better standards of living than their peers in less productive ones. For example, McDonald’s workers in the U.S. can buy about 2.4 Big Macs with their earnings from an hour of work, but this drops to:
2.2 Big Macs in Western Europe,
0.8 Big Macs in Eastern Europe, and
0.4 Big Macs in Latin America.
This amounts to a stunning 500% premium in purchasing power in the U.S. versus Latin America. As detailed by Princeton economics professor Orley C. Ashenfelter, McDonalds’ workers across the world perform the same jobs with the same levels of productivity, but because they live in nations with different levels of productivity, these workers have vastly different standards of living.