Yesterday’s productivity report for 2014q1 was predictably negative—we already knew that real GDP fell in the quarter while employment grew apace—but I don’t read much into the noisy quarterly changes.
But then there’s this: year-over-year, productivity growth was up 1% last year and has averaged 0.8% since 2011. The figure below plots the yearly changes, which are themselves pretty noisy. What’s more instructive is the smooth trend through the numbers.
Year-over-Year Productivity Growth and Smooth Trend
Source: BLS, my analysis
The trend suggests that the pace of productivity growth has decelerated since the first half of the 2000s and this begs an important question. There’s considerable speculation that the pace at which machines are displacing workers has accelerated. I keep hearing about “the end of work” based on the assumption that the pace of labor-saving technology—robots, AI—has accelerated.
Maybe it has—there’s lots of good anecdotes to that effect, most recently that geeky-looking Google self-driving car. And data being the plural of anecdote, I’m certainly open to the possibility. But the robots-are-coming advocates need to explain why a phenomenon that should be associated with accelerating productivity is allegedly occurring over a fairly protracted period where the trend in output per hour is going the other way.
A shave with Occam’s razor would lead one to conclude that over this weak expansion characterized by large output gaps, a simpler explanation for decelerating productivity would be weak demand and its corollary, weak capital investment. Perhaps once we close those gaps, we’ll be better positioned to get a read on the pace at which labor-saving technology is entering the workforce.
Finally, until someone can convince me what’s wrong with the above argument, I don’t want to hear that automation-induced productivity gains are precluding full employment. The problem isn’t productivity; it’s negligent policy.