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Productivity is anemic, so are wages

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The Department of Labor reported on February 4 that labor productivity rose at a 0.3 percent rate year-over-year in 2015. Productivity fell 3.0 percent in the fourth quarter of 2015, compared to the previous quarter.

“You’re seeing productivity growth rates less than 1-fourth of what we were seeing in the 70 years before the Great Recession,” said economist Patrick Newport at IHS Global Insight.

Productivity is closely tied to wages. Employers pay workers more with increased profits they can get from workers being more efficient and productive. Right now, productivity and wages are both stuck, and one reason is lack of business investment in new plant and equipment and technology, said analyst Josh Bivens at the Economic Policy Institute.

Businesses “are not very convinced they should open new factories and open new hotels,” said Bivens, “because the ones they have are not running at full capacity, so they need to see more customers and more demand growth before they’ll do that investment.”

Bivens pointed out that U.S. businesses have a lot of cash on hand, and it’s cheap to borrow for productivity-enhancing workplace improvements, with interest rates still historically low. But he said they aren’t likely to make that investment unless the economy heats up a lot more.

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