Figure 711

Productivity Growth Jumped in the Late 1990s

The rate of productivity growth increased after 1995.

Output per Hour in the Nonfarm Business Sector Index, 1992=100

Note: Productivity is the average of income- and product-side measures. Productivity for 2000 is inferred from the first three quarters. Shading indicates recessions.

Source: Economic Report of the President, U.S. Government Printing Office, Washington, DC, 2001, p. 27.

goods and services produced per hour. Although these measures relate output to hours of employees or all persons engaged in an industry, they do not measure the specific contribution of labor, capital, or any other factor of production. Rather, they reflect the joint effects of many influences, including changes in technology; capital investment; level of output; utilization of capacity, energy, and materials; the organization of production; managerial skill; and the characteristics and effort of the workforce.

To calculate productivity measures for industries with diverse and changing output, different products are aggregated into one output measure by weighting (multiplying) the relative change in output of each product by its share in the total value of output. In this way, higher value products that require more resources to produce are given higher weight. For tangible products, such as tons of steel, developing an output index series and productivity measures can be fairly straightforward. In other industries, particularly in the services sector, developing output indexes and productivity measures is more challenging. In many instances, data for the quantities of output produced or the number of times a service has been performed are not available. However, changes in revenue are typically available, and changes in revenue reflect changes in both the quantity of output and its price. Price changes can be accounted for by dividing an index of revenue by a price index. This leaves an index of quantity that can be used to measure productivity.

Industry studies cover a variety of manufacturing and nonmanufacturing industries at the sector, industry group, and industry-level classifications. Measures for over 175 industries are published on an annual basis, beginning as early as 1947. Coverage includes industries in the manufacturing, mining, trade, transportation, communication, public utilities, finance, and business and personal services sectors. In addition to measures of industry worker productivity, BLS publishes multifactor productivity statistics for certain industries. First released in 1987, industry multifactor productivity measures relate output to the combined inputs of labor, capital, and intermediate purchases. Unlike worker productivity measures, multifactor productivity measures are free from the effects of changes in the ratio of capital to labor and alterations in the ratio of intermediate purchases to labor. Because of the enormous data requirements for the measurement of capital and intermediate purchases, only a limited number of industry multifactor productivity measures has been published.

As shown in Figure 7.12, almost all manufacturing industries posted productivity gains from 1990 to 1999. Output per hour increased in 111 of the 119 industries. Productivity advanced an amazing 5 percent per year in 12 industries. Another 49 industries experienced exceptional annual productivity growth in the 2.5-4.9 percent range. Computer and office equipment posted the largest average annual gain, 33.3 percent. The five largest manufacturing industries all registered growth in output per hour from 1990 to 1999. Worker productivity rose a stunning 26 percent in electronic components and accessories; 3.3 percent in miscellaneous plastics products; 3.2 percent in motor vehicles and equipment; 1.3 percent in commercial printing; and 0.6 percent in meat products.

From 1990 to 1999, unit labor costs fell in 34 of the 119 industries in the manufacturing sector. Of the 34 industries, only pulp mills had decreasing worker productivity (-3 percent). The largest declines in unit labor costs were computer and office equipment (-22.3 percent) and electronic components and accessories (-17.6 percent). In the early years of the period, 1990-95, output per hour increased in 106 of the 119 industries. In 20 industries, productivity advanced 5 percent per year or more. An additional 36 industries experienced annual productivity growth in the 2.5-4.9 percent range.

Comparing the 1990-95 period with the 1995-99 period, productivity growth rates increased in 72 of 119 manufacturing industries. In 14 industries, annual output per hour grew at least 5 percentage points faster in 1995-99 than in 1990-95. Another 24 industries posted annual productivity growth rates 2.0-4.9 percentage points above their 1990-95 rates. All 13 of the

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