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American Worker Productivity Declines to Worst Level in Six Decades

Jonathan Walker
Jonathan loves talking politics, economics and philosophy. He carries unique perspectives on everything making him a rather odd mix of liberal-conservative with a streak of independent Austrian thought.
Published: December 8, 2021
President Joe Biden delivers remarks on the November jobs report in the State Dining Room of the White House on December 03, 2021 in Washington, DC. (Image: Anna Moneymaker via Getty Images)
President Joe Biden delivers remarks on the November jobs report in the State Dining Room of the White House on December 03, 2021 in Washington, DC. (Image: Anna Moneymaker via Getty Images)

The Labor Department reported that the productivity of U.S. workers in this year’s third quarter fell to the worst levels since 1960.

The Q3 nonfarm business employee output per hour fell at an annualized rate of 5.2 percent. This was worse than the 3.1 percent decline predicted in a survey of economists by Bloomberg.

The 5.2 percent fall follows a 2.4 percent growth in Q2. The last time there was a bigger quarterly decline in productivity was in Q2 1960 when it fell by 6.1 percent. Between Q3  2020 and Q3 2021, the nonfarm business sector labor productivity declined by 0.6 percent. This four-quarter decline is the biggest since Q4 1993 when it also fell by 0.6 percent.

“Unit labor costs in the nonfarm business sector increased at an annual rate of 9.6 percent in the third quarter of 2021, reflecting a 3.9-percent increase in hourly compensation and a 5.2-percent decrease in productivity. Unit labor costs increased 6.3 percent over the last four quarters… The nonfarm business labor productivity index is 2.8 percent higher in third-quarter 2021 than it was in fourth-quarter 2019, corresponding to an annualized growth rate of 1.6 percent during the pandemic period of fourth quarter 2019 through third quarter 2021,” the Labor Department report stated.

Regarding manufacturing, labor productivity fell by 1.8 percent in Q3 2021. In the durable manufacturing sector, there was a 0.7 percent increase in productivity while the nondurable manufacturing sector saw a 3.6 percent productivity decline. The manufacturing sector output is 1 percent above the Q4 2019 level, which was the last quarter not affected by the COVID-19 pandemic.

“We take the plunge with a large grain of salt since the data are heavily distorted by the pandemic… We look for productivity growth to stay upbeat in the near-term even as the labor market recovery heats up and the economy maintains solid momentum,” Oxford Economics’ Oren Klachkin and Gregory Daco stated following the Labor Department report.

The productivity decline comes as the country saw a record number of resignations in the previous months. Many businesses have increased wages and added benefits in order to retain and attract workers. 

Despite these measures, labor shortage continues to be a problem. According to government data, the number of Americans who resigned in the month of September rose to a record 3 percent at 4.4 million.

Some economists believe most workers will come back to their jobs next year, easing out the labor issues facing businesses. 

“One reason for optimism about the labor force re-entry of prime-age workers is that nearly all workers who left the labor force during the pandemic intend to re-enter in the next 12 months, suggesting that most prime-age exiters still view their exits as temporary,” analysts at Goldman Sachs said in a recent report.

However, a recent poll by CareerArc/Harris Poll predicts tough times ahead for businesses when it comes to retaining workers.

The poll found that 23 percent of fully employed American citizens plan on leaving their jobs within 12 months. Thirty-two percent blamed poor working conditions for the decision; 30 percent revealed that they were burned out; 29 percent want better pay. 

Seventy percent of those who said they will quit within 12 months plan to do so by Feb. 2022; the remaining said they will exit by November. Employees in the age group of 18 to 34 are twice more likely than those between 35 and 64 to say that they will quit their jobs.