Wages up, productivity flat

Jeff Tyler Nov 2, 2006

KAI RYSSDAL: Worker productivity’s one of those economic reports that can be a little tricky. Especially when it’s not growing, as was the case last quarter. The Labor Department said this morning productivity growth was flat this summer. And wages rose almost four percent. Sounds promising if it applies to you. Might mean companies will have to hire more employees. And pay them a little extra. What’s not to love, right? Here’s Marketplace’s Jeff Tyler to tell us.

JEFF TYLER: Productivity measures the output of American workers. Today’s numbers were stagnant. So, why should you care?

HUGH JOHNSON: It’s costing U.S. companies in the third quarter more to produce the same amount.

That’s Hugh Johnson, chief economist at the asset management company, Johnson Illington Advisors. In the past, investments in new technology had allowed companies to increase productivity using the same number of workers. But last quarter, that didn’t pan out.

JOHNSON: It means there’s going to be pressure on companies, that if they want to increase their output to respond to fairly strong demand, what they’re going to have to do is hire more folks. And that might mean they might have to pay higher prices for those workers.

Johnson’s assessment?

JOHNSON: It’s a little bit inflationary. And quite frankly, not good news for the financial markets or the Federal Reserve.

University of Southern California business professor Warren Bennis is less concerned.

WARREN BENNIS: If the economy were my patient and I were an M.D., I’d say, “Watch and wait. It’s no time to react right now.” Because we’re still doing relatively well worldwide, globally, in terms of productivity.

Bennis says salaries and wages haven’t kept pace with inflation or executive compensation. So in a way, he says, a little wage inflation helps balance the playing field.

Bennis and Johnson both expect productivity will bounce back soon. And neither believes today’s snapshot will cause the Federal Reserve to raise interest rates.

I’m Jeff Tyler for Marketplace.

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