Paid more to produce less…

**U.S. Productivity Falls for Second Straight Quarter**
**Rapidly rising labor costs add to inflation pressures as the Federal Reserve attempts to slow price increases**
**By Jeffrey Sparshott, The Wall Street Journal, Aug. 9, 2022**

**U.S. labor productivity declined for the second consecutive quarter as overall economic output contracted and employers spent more on labor as they added workers....**

**U.S. nonfarm labor productivity — a measure of goods and services produced in the U.S. per hour worked — fell at a seasonally adjusted annual rate of 4.6% in the second quarter from the prior quarter...Unit labor costs, a measure of worker compensation and productivity, increased at a 10.8% pace in the second quarter from the prior quarter...Quarterly productivity figures are volatile, but the weak second-quarter number follows a 7.4% pullback in the first quarter, the sharpest drop in 74 years. ...**

**Rising productivity is the key to improving living standards; it allows companies to raise wages without raising prices and fueling inflation. Instead, businesses appear to be paying workers more to produce less. The higher unit labor costs suggest companies will either endure lower profits or pass on higher costs to consumers....** [end quote]

Labor productivity is volatile but it’s clearly looking bad since 2020. It hasn’t looked this bad since the recessions of 1973-74 and 1980-82.…

Average hourly earnings grew 5.2% in July from a year earlier, and annual wage gains have exceeded 5% each month this year. This is slower than the growth of inflation so real wages are falling although the burden on employers is growing.

This is a double whammy for the stock market. The Fed will be continue to raise the fed funds rate to try to control inflation. Meanwhile, lower productivity and higher labor costs will reduce corporate earnings.


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Isn’t that normal in an economic recovery? As business improves, the first response of the “JCs” is to get the whip and beat more work out of the staff they already have. That is the refrain I heard, repeatedly, from fast food staff last year: working at a frantic pace because of short staff and extreme long workweeks, piled high with OT.

There was a news report last year of the entire staff of a fast food place quitting, on the same day, because they were fed up with the pace and the hours.

As more staff is added, the pace slacks, because no-one can work at 150% forever.



Paid more to produce less
Labor productivity is volatile but it’s clearly looking bad since 2020. It hasn’t looked this bad since the recessions of 1973-74 and 1980-82.

Just to clarify, the above statement on productivity data applies to the change in labor productivity, no?

Labor productivity itself is on a long-term trajectory up, and productivity today is higher than all pre-pandemic history (

It is probably more accurate to say that, on average through history (even quite recent history such as since pre-pandemic), labor is paid to produce more. This only makes sense given how technology advances.

As far as investment implications, corporate profit margins have been quite healthy and are at the upper end of their historical range as a percent of GDP (

Obviously these statistics will be volatile near economic dislocations such as recessions and one thing most people probably agree on is that we are in unusual economic times.


Productivity is an unmitigated disaster right now. As a nation, we have an additional 2M+ people working in 2022, and they have contributed nothing at all to GDP. That is really very bad.

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And about 6 months later…

We’re moving back on trend: workers working and their productivity going up, producing more real output per hour, just like they have always done over the long run.

Like @steve203 says, there is a productivity bump (and then decline) after economic downturns (Nonfarm Business Sector: Labor Productivity (Output per Hour) for All Workers (OPHNFB) | FRED | St. Louis Fed).

Is this disaster over?


At best the WSJ article is cherry picking the data. At worst it is a political hit job as usual. Must say that the punchbowl has been taken away and labor wont get a raise but that has nothing much to do with misattributing the decline in output to labor costs. In fact if labor was doing better so would the economy. Has the esteemed WSJ ever been wrong? Why so often does the paper use being wrong to someone’s advantage?

Output is down? So are the marginal profits. The punchbowl has been taken away. The top got most of the gains as usual. The WSJ is fully aware of that when writing their trash.

How do I say this? It twists in and out on itself.

Productivity? Tie to labor? Then labor is stuck in place relative to profits? Also labor is slipping against profits to make productivity better. Without leverage labor fails. Really labor already has filed since 2000 if not 1979.

Labor also is in a free market. Or do we regulate labor going forward?

But how do we get productivity gains? The main thing is the WSJ is the wrong source. An entirely ignorant source of how to get productivity gains. On Wall St the paper is called “the urinal”.

Productivity depends on economies of scale. The factory down the street making the part your factory needs and demand locally rising so the factory is paid for. That means rising labor costs but lower widget prices. Creating a successful industrial base necessitates many different factories succeeding together. That does not happen with outsourcing. Something the WSJ always falls back on or fall for.

Economies of scale happen with government outlays that pay for themselves over time. Yes you have heard that lie about tax cuts paying for themselves as well during the great outsourcing period and tax cuts of supply side economics. Does that mean the opposite of supply side economics is a lie as well? I have seen a lot of ejits think so. It is truly amazing just how ignorant that is.

If we want manufacturing as a deflationary force then the net margins on goods and services need to be inline or reasonable. Not just a landgrab in the aftermath of a pandemic. The data sucks. But we know who is guilty .Or you need to read my link just above. if you skipped it.

What is happening right now with global inflation is China is no longer the exporter of a deflationary force based on industrial economies of scale. That now belongs to the US/Mexico. We will get there quickly in 2024.

The other thing is that most of (nearly all) of the recent layoffs are of high earners. That leaves in the lower earners and their hours/wages for the calculation. If GDP continues to grow, even slightly, that means the measured productivity number will remain up.

(I suspect that will be the case, but I am not sure if it is a correct analysis.)

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