🎭 Jobs are booming. Productivity growth isn't. What's up with that?

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“There are few limitations placed upon man other than those of his own making. It is up to him whether he broadens his viewpoint or not. His horizon is of his own making.” - Norman Bel Geddes, Horizons

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The Essay

🎭 Jobs are booming. Productivity growth isn't. What's up with that?

This isn’t the New Roaring Twenties I was looking for. At least not yet.

By one measure, the US economy is going gangbusters. One pretty darn important measure, in fact: jobs. In May, employers added 339,00 net new jobs, easily topping the consensus estimate of 189,000. What’s more, the total of the previous two months was revised upward by 93,000. Cumulatively, nearly 1.6 million new jobs have been added this year. True, other employment metrics weren’t so boomy last month, including average hourly earnings, average workweek hours, and, most notably, the unemployment rate rising by 0.3 to 3.7 percent. Nonetheless, as described by the economics team at Goldman Sachs, “the underlying pace of hiring was … extremely strong.”

Unfortunately, productivity growth cannot be described as either “going gangbusters” or “extremely strong.” Not at all. The day before it announced the jobs numbers, the Bureau of Labor Statistics said the productivity of American workers decreased by a revised 2.1 percent annual rate in the first quarter of 2023 versus the fourth quarter of 2022 and was down 0.8 percent in the first quarter from a year earlier. This marked the fifth consecutive quarter of negative year-over-year productivity growth, the longest such streak since records began in 1948. That “cratering … raises questions about whether the much-hyped technology adoption during the pandemic and, more recently, artificial intelligence are making a difference,” according to Wall Street Journal reporter Gwynn Guilford.

What’s more, in a new analysis, the Conference Board expects disappointing productivity growth across rich country economies this year:

Labor productivity growth in mature economies declined marginally (−0.1%) in 2022 and is forecast to rebound only modestly to +0.4% in 2023. That’s well below the already weak trend of +1.0% average productivity growth during the 2011–2019 period.Much of the weakness in 2022 and 2023 is concentrated in economies with booming labor demand, led by the United States and France.

In the US, GDP per hour worked is set to fall −0.7% in 2023, after declining −1.1% last year. Nevertheless, US labor productivity remains about 4% above prepandemic (i.e., 2019) levels, due to extremely fast growth in 2020. In this respect, the US has outperformed key economies in Europe—though the Euro Area is expected to see a smaller productivity contraction of just −0.2% in 2023.

The Wall Street Journal

So what’s going on here? A couple of important things, I think.