Labor Productivity


Diagrams and Data

Explore further current and historical data for Labor Productivity and how it relates to the Inflation Rate (CPI), the real GDP, and wages.

Current and Historical Data for Labor Productivity
Review the current and historical data for Labor Productivity, by quarter at

Labor Productivity and the Consumer Price Index: Annual Percent Change Relative To Same Period Last Year
We can see in the diagram and table below that there is generally an inverse relationship between productivity and inflation. Economic theory would lead us to expect that inflationary pressures will be stronger when productivity growth rates are low. For example, if the growth rate in labor productivity were to fall to zero, then there is no increase in output per hour that could be used to fund pay raises. Consequently firms would have to raise prices, which can trigger accelerated inflation. Likewise wage increases are less likely to trigger a rise in inflation when productivity growth rates are high. Strong growth in labor productivity since the mid-1990s has helped to keep inflationary pressures low. Although the growth rate of labor productivity had fallen during the initial phase of the recession that began in the first quarter of 2001, it seems to be on the upswing early 2003. The economic recovery is pushing up the CPI, which is reassuring to many economists who had been concerned about the threat of deflation just a year or so ago. provides a more complete collection of data for the following:
Labor Productivity I Inflation Rate (CPI)

Labor Productivity and Real GDP: Annual Percent Change Relative to Same Period Last Year
As we can observe from this diagram, Labor Productivity and real GDP tend to move together. . From economic theory we know that increasing labor productivity is a key source of economic growth. The upturn in economic growth in the late-1990s seems to be associated with a higher rate of growth in labor productivity that some economists attribute to advancing computer and telecommunications technology. You can also see that productivity growth rates have increased sharply near the end of each of the four U.S. recessions since 1980, in part because firms are likely to ask existing workers to work harder and longer rather than hire new workers until it is known that improved economic conditions will persist. It is interesting to note that gains in labor productivity tend to be a leading economic indicator of recovery from recessions, which is evident in the diagram. In 2003 both labor productivity and GDP are on the rise, and many hope that this is pointing the way towards further economic recovery. The term "jobless recovery" that some economists are applying to this economic recovery is consistent with the pattern observed in other recoveries over the last several decades. provides a more complete collection of data for the following:
Labor Productivity I Real GDP

Labor Productivity and Real Compensation: Annual Percent Change Relative to Same Period Last Year
Microeconomic theory suggests that the rate of change in real wages will be determined by the rate of change in Labor Productivity. As long as the prices of the goods and services produced by labor are not falling, then higher labor productivity increases the amount that firms are willing to pay for labor in the labor market. The diagram below relate labor productivity to real wages, and you can see that labor productivity and real wages tend to move together. Productivity does not appear to explain all of the variation in real wages, as is made clear by the decline in real wages during the late 1980's, when labor productivity was growing. The prosperous mid- to late-1990s saw rapid increases in real compensation, fueled in part by rising labor productivity. It is also interesting to note that while labor productivity has seen continuous positive growth since 1983, real compensation has had more numerous periods of decline since that time. In the last year we again are seeing compensation growth lagging behind growth in productivity, which may be a consequence of greater use of foreign outsourcing of production at lower wages, as well as effects of the generally weak economic recovery. provides a more complete collection of data for the following:
Labor Productivity I Real Compensation Per Hour

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