Labor productivity, wages and corporate profits

Labor productivity is a key macroeconomic measure: increasing output per hour worked increases standard of living.

Labor productivity is reported quarterly and can be noisy/volatile, so conclusions should not be inferred from short-term fluctuations in the data. Recessions and macroeconomic shocks like the pandemic add noise to the data as well, as important metrics like employment increase/decrease relative to more normal values, as one example.

In Q2 2022, labor productivity fell back to trend (after increasing above trend) and some reactions included

  • we have a disaster that can’t be mitigated and is very bad with 2+ million people not adding any value

What do the data say?

Have a look below at the trends since 1965 (about the last 60 years) for labor productivity, real wages and corporate profits (as percent of gross domestic income or GDI).

  • worker pay (real wages) is up, but productivity is up more as the lines have converged indicating workers are paid incrementally less to produce incrementally more
  • corporate profits look fine through 2022 (no data yet for 2023) - corporate profits as percent of GDI are near the highest they have been in recent times
  • there is no productivity disaster, labor productivity continues to trend higher and is the highest it has ever been

Did productivity recover by dumping all of the extra 2+ million workers?

No, the US added jobs presumably because businesses needed additional productive workers. On a net basis, nonfarm payrolls have grown by about 5 million from August 2022 to December 2023 (All Employees, Total Nonfarm (PAYNSA) | FRED | St. Louis Fed). Businesses retained those 2+ million and added another net 5 million.

Over the last 60 years, workers are producing more additional real output for a lesser increase in real wages while corporate profits as a percent of GDI over this time period are the highest they have been.

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@mostlylong thank you for your very good post which is worth 10 of most rec’d posts.

How did you make your chart which overlays 3 separate FRED charts?
Wendy

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Thank you for the kind comment.

In the FRED chart, there is an EDIT GRAPH button in the upper right. You can add lines from other series (and also select options like display absolute amounts or percents such as year-over-year, month-over-month, etc) and also format (including use right and left y-axes).

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