Making America Work: Productivity and Responsibility
Productivity is the gold mine that determines our standard of living and our ability to compete as equals with the rest of the world. Productivity is output per hour of work. If it is rising, there is more economic gold to be divided among us. If productivity growth keeps up with that of our industrial competitors, we can have an equal standard of living and compete on the frontiers of economic activity. Americans will always be able to export; but with productivity falling relative to that of our principal competitors—as it has been—the value of the dollar must continually decline. The country increasingly becomes a relatively low-wage exporter of raw materials and simple manufactured products.
As with any gold mine some smart or lucky prospector finds a vein of high-grade productivity ore. Ordinary miners follow that vein of ore down into the bowels of the economy, but eventually every vein of ore peters out. If the same amount of gold is to be brought out of the mine, new veins of ore must continually be found.
From the beginnings of the industrial revolution to 1965 American productivity grew at about 3 percent per year, but since then the growth of productivity has slowly but persistently declined. Since 1978 productivity has actually been slightly negative (0.3 percent per year). At the end of each of the last three years the average American worker has produced less per hour of work than she or he was producing at the beginning of the year. It is highly likely that 1981 will continue this trend. It has just been announced that nonfarm business productivity declined 2.2 percent in the third quarter. Gold has ceased coming out of the American productivity mine.
Much of the problem can be traced to veins of ore that have petered out but have not been replaced with new sources of ore. For many years America was making large productivity gains by moving workers out of agriculture and into industry. Although agricultural productivity was growing rapidly, it was only 40 percent of the national average in 1948. Every worker released from agriculture and retained by industry represented a worker whose productivity had risen two and a half times. From 1948 to 1965 9.1 billion hours of work left agriculture and entered industrial employment.
As agriculture declined from 17 to 5 percent of all hours worked it made a major contribution to aggregate productivity. A very low productivity industry was getting smaller and its workers were being transferred to jobs with much higher productivity. But by 1972 this process had ended. In the numbers of workers it employed agriculture had become a very small industry and agricultural employment was no longer falling.
The end of that fall in agricultural employment, however, provides an explanation for about 10 percent of the observed drop from 3 percent to 0.3 percent in productivity growth. If American productivity were to have continued growing at 3 percent per year, Americans …