Workers process fish in Massachusetts. With labor hard to obtain and demand strong, businesses have some of the strongest incentives in years to figure out ways to be more productive.
Photo: Adam Glanzman for The Wall Street Journal
American workers didn’t get much more productive last year. This year could be different.
The Labor Department on Thursday reported that productivity, as measured by how much the average worker produces in a typical hour, grew at a 6.6% annual rate in the fourth quarter from the previous quarter. A big gain, but one that came on top of a substantial 5% decline in the third quarter. For the whole of 2021, productivity rose 1.9%. That was less than 2020’s 2.4% productivity gain, and less than the 2% logged in the pre-pandemic year of 2019.
The thing is, the U.S. could really use a productivity boost right now. The more a worker can produce in an hour, the lower the labor costs for production go. When productivity growth is high, businesses can sell more, pay workers more and increase profits while leaving prices unchanged. At a time when investors are worried that rising wages will pressure profit margins and that persistent inflation will lead the Federal Reserve to slam the brakes on the economy, stronger productivity gains would be more than welcome.
Better productivity might be on the way. One reason is that the pandemic precipitated changes in the way people work that, if the pandemic eases this year, could pay big dividends. The ability to work from home when that is the better option and head into the office when it isn’t, or to meet virtually sometimes and in-person others, could make people far more efficient. The productivity payoff from the online menus and ordering systems many restaurants have put in place might not really arrive until the restaurant business has fully recovered.
But one needn’t be optimistic about such developments to expect that productivity might pick up. The supply chain snarls and product shortages that have beset the economy since the pandemic hit have been, among other things, huge time wasters. If goods start moving more freely, a lot of workers could suddenly become much more productive. And to the extent that car manufacturers and others have products that are fully built except for some hard-to-obtain semiconductors, the installation of some chips could create a real productivity miracle.
Moreover, with labor hard to obtain and demand strong, businesses have some of the strongest incentives in years to figure out ways to be more productive. Given the alternatives of losing sales or seeing labor costs take an ever bigger bite out of profits, here’s guessing many of them will come up with ways to be more efficient that they never would have when wages were stagnant and economic growth was mediocre.
Investors are understandably worried that slower earnings growth and rising interest rates will make 2022 miserable for stocks. But a better productivity outlook could at the very least make this year a little less bad.
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Appeared in the February 4, 2022, print edition as ‘U.S. Workers Poised to Be More Productive.’
