Global Productivity Isn’t Improving

It’s not exactly news that worker productivity has been in a slump for years. What is news is that the problem isn’t getting any better. In fact, it may be getting worse.

A 2015 report from The Conference Board found that Total Factor Productivity (TFP) growth—which combines the effects of improvement in efficiency and technology and innovation – had all but collapsed.

It fell from an average of 1.3% in 1999–2006 to just 0.3% in 2007–2014. The United States saw average TFP growth fall from 1% in 1999-2006 to 0.2% in 2007–14, where it is projected to stay through 2025.

At the same time, labor productivity (output per worker) has fallen more modestly, from an average of 2.6% per year in 1999–2006 to 2.4% in 2007–2014.

No Rebound in Sight

Now, a May 2016 report from the Board finds that global productivity growth continues to weaken, “creating another headwind for businesses already facing slowing demand for goods and services.”

According to this latest report, global productivity growth will continue to soften throughout 2016.

“The 2016 Productivity Brief, based on data from The Conference Board Total Economy Database, projects global productivity to grow just 1.5 percent in 2016, compared to 1.2% in 2015 and 1.9% in 2014,” said The Conference Board, in a statement.

In mature economies (like the U.S.), both output and employment growth are projected to slow down. Productivity growth is expected to moderate from 0.7 percent in 2015 to 0.6 percent in 2016.

The Board said that the U.S. is currently experiencing the slowest productivity growth since 1982 (0.7% in 2015, and zero growth projected in 2016).

That’s right ZERO growth in 2016.

Productivity Growth = Economic Growth

According to the 2015 report, productivity growth needs to be strengthened by as much as 60% in the next ten years to achieve the same growth levels as before the crisis.

Obviously, having zero growth in 2016 won’t help us reach this goal.

This presents a huge challenge, especially for advanced economies like that of the U.S.A. You could say that the U.S. is addicted to productivity growth, since it is a big factor in enabling the country to compete with cheap-labor emerging economies.

Without productivity growth, U.S. workers fall further behind their counterparts in other countries, and living standards drop.

The “good news” in all of this is that the U.S. is not alone in suffering a slowdown in productivity growth. Indeed, the report finds that the problem is global, and affects developed as well as emerging economies.

Also, in terms of output per hour, the U.S. workforce remains by far the world’s most productive.

All of that last bit is encouraging, but without fresh, strong growth in productivity the U.S. won’t remain on top for long.

In fact, The Conference Board reports that European economies have recently shown slightly better productivity performance (currently at 0.9%, up from 0.5% in 2014) compared to the U.S.

No Simple Solution

Unfortunately, there is no quick fix to this mess. Over the past few decades, productivity growth has been driven by technical innovation. But the economy’s ability to translate technical innovation into productivity growth has slowed to a crawl.

This isn’t just happening in the U.S., (or other mature economies). Indeed, it is the emerging economies that are really lagging in productivity growth – and dragging the world down with them.

Still, it would be helpful if greater emphasis would be put on achieving higher productivity through technology. Things like automated manufacturing and rapid prototyping via 3D printing are two examples of where technology gains can rapidly spell productivity improvement.

But these types of innovations require large investment to bear fruit, and investment is still lagging the pre-recession pace.

Bottom line: the economy needs a shot in the arm.

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