Why the United States has a Productivity Problem

Gross Domestic Product. Consumer Price Index. Unemployment rate. These are some of the economic indicators that policymakers such as the Federal Reserve pay attention to in order to gauge the health of the U.S. economy.

But there’s another key, if often overlooked, metric that economists and officials use to guide fiscal and monetary policy decisions — one that measures how well the average worker is at, well, working.

Enter the labor productivity metric.

“It’s an attempt to figure out how efficient workers are,” said Jason Furman, Harvard Kennedy School professor and former chairman of the Council of Economic Advisers under President Barack Obama. “If you can produce a lot of output with an hour of work, you’re very productive. If you can’t produce very much, it’s quite low.”

But labor productivity in the U.S. has been falling. Prior to the data from the most recent quarter, the country had seen five consecutive quarters of year-over-year declines in worker productivity.

According to EY-Parthenon chief economist Greg Daco, this prolonged productivity slump is the first such instance since the Bureau of Labor Statistics began tracking the data in 1948. And while the reasons behind the decline may be up for debate, the economic impacts are wide-ranging and can be felt across the board.

“Sluggish productivity means sluggish growth. It means sluggish wage growth and increase in living standards,” said Furman. “It matters for just about everything in the economy.”