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P R O D U C T IV IT Y a n d th e ECONOM Y Bulletin 1710 n / o U.S. DEPARTM ENT OF LABO R Bureau of Labor Statistics Davton & Montgomery. Co, Public Library SEP 3 1971 d o c u m e n t c o l l e c t io n U.S. DEPARTM ENT OF LABOR J. D. Hodgson, Secretary P R O D U C T IV IT Y a n d th e ECONOM Y BUREAU OF LABOR STATISTICS Geoffrey H. Moore, Commissioner 1971 Bulletin 1710 For sale by the Superintendent of Documents, U. S. Government Printing Office, Washington, D. C. 20402 - P rice 50 cents Stock Number 2901-0673 Productivity is involved in one way or another with most major issues of public and private policy. The need for information about productivity has been continuous, al though the focus of attention has varied depending on the economic climate. During periods of economic slowdowns, emphasis has been placed on the relationship of pro ductivity to unemployment, concentrating on the role of changing technology. On the other hand, during periods of rising prices, interest has centered on the problem of rising costs and the relationship between productivity and wages. This report describes productivity movements and shows how they are related to incomes, costs, prices, and employment. The report is divided into four parts. The first part traces trends in the private economy and major sectors, the second deals with changes in specific industries, the third compares trends in the United States with those in other countries, and the fourth presents projected trends in productivity. The report was prepared by the Office of Productivity and Technology of the Bureau of Labor Statistics. C o n te n ts Introduction Page What productivity is and how it is measured ............................................................................................... How productivity growth helps stabilize the ec o n o m y ................................................................................... 1 3 Trends in the private economy and major sectors What’s been happening to productivity............................................................................................................... How productivity has changed in recent quarters ............................................................................................ How productivity has changed in relation to wages and unit labor costs ..................................... How productivity, wages, and unit labor costs have changed in the short term ..................................... How unit labor costs, profits, and other payments are related to price ch an g es.................................. How productivity changes for major sectors are related to changes in wages, labor costs, and prices .......................................................................................................................................... How labor has shared in the Nation’s productivity ......................................................................................... How productivity is related to output and employment ............................................................................. 4 6 8 10 12 14 16 18 Changes in individual industries How How How How How productivity growth rates vary by industry ............................................................................................ output per man-hour components vary from industry to industry ................................................. industry productivity growth rates change over time ........................................................................... changes in industry productivity relate to changes in employment ................................................. industry productivity changes are related to price movements ....................................................... 20 22 24 26 28 International comparisons How United States productivity growth in manufacturing compares with other industrial countries.................................................................................................................................................. 30 Projections What trends in productivity are projected .......................................................................................................... What distribution of employment is projected.................................................................................................. 32 34 v ■ . . ' ‘ ■ , W h a t P ro d u ctiv ity is and H ow it is M easured Productivity expresses the relationship between the quantity of goods and services produced— output, and the quantity of labor, capital, land, energy, and other resources that produced it— inputs. Basically, productivity can be viewed in two ways. One way relates output (of an enterprise, industry, or economic sector) to a single input such as labor or capital; the other way relates output to a composite of inputs, combined to reflect their relative importance. One of the most commonly used measures of productivity relates output to the in put of labor time— output per man-hour. This measure is relevant to many economic problems and is especially useful for manpower and income analyses. Of course, an index of output per man-hour does not imply that labor is solely or primarily responsible for productivity growth. In a technologically advanced society, labor effort is only one of many interrelated sources of improvement. The trend in output per man-hour thus reflects technological innovation, changes in capital stock and capacity utilization, scale of production, materials flow, management skills, the state of labor relations, the pressure of competition, and many other factors the contribution of which often cannot be measured separately. One reason for the usefulness of a labor productivity measure is that labor input is readily measurable at several levels— the total private economy, the industrial sectors, industries, or plants. Labor input can be defined in various ways: It can refer to the num ber of persons working or the number of hours they work; it can cover the entire labor force, including proprietors, unpaid family workers, and employees, or it can be limited to selected groups of workers. Output refers to the finished product or the amount of product added in the various enterprises, industries, sectors, or the economy as a whole. Output is measured for in dustries producing not only goods but also services that are difficult to quantify, such as health, insurance, and education. Few plants or industries produce a single homogeneous commodity that can be measured simply by counting the number of units produced. Consequently, for the pur pose of measurement the various units of a plant or industry’s output are combined on some common basis— either their man-hour requirements in a base period or their dollar value. Further, when information on the amount of units produced is not available, as is often the case, output must be expressed in terms of the dollar value of production, ad justed for price changes. 1 H o w P ro d u ctiv ity G ro w th H elp s S ta b iliz e the Eco n o m y Increasing the rate of productivity improvement can contribute to cost and price stability. This potential aspect of productivity growth stems from the role of output per man-hour— an especially relevant productivity concept when dealing with unit labor costs— as a critical link between the cost of labor and the price of goods. Each unit of output requires certain inputs— labor, materials, capital. Each of these inputs has a certain cost. The total of these costs, together with profit per unit, determines the price per unit of output. In most industries, labor costs, including hourly rates of pay, overtime, and all types of fringe benefits, are the largest single cost element. Consequently, the trend of labor costs per unit of output affects the price level significantly. Labor costs per unit of output represent the relationship between total compen sation and output. The greater the increase in productivity relative to the increase in hourly compensation, the less pressure to increase prices, although changes in profits and in material costs per unit of output may offset, or partly offset, this effect. On the other hand, changes in unit labor costs can be a result as well as a cause of price rises. Price rises that cause employee purchasing power to fall lead to pressure for higher wages. If the wage increases exceed productivity growth, unit labor costs will increase. 3 W h a t's B een H a p p e n in g to P ro d u ctiv ity Between 1969 and 1970, productivity in the private sector grew by less than 1 per cent, as it did between 1968 and 1969. As 1971 began, however, the rate of productivity growth accelerated. Over the last 5 years, productivity growth averaged 2.1 percent a year, compared with a 20-year average growth rate of 3.0 percent a year. Annual changes in output per man-hour tend to fluctuate fairly widely, and gener ally are associated with variations in output. Output declined in 1970, the first decline since 1958, and productivity grew only because man-hours declined even more than out put did. Average annual percent change Year and period Output per man-hour 1950-70 ........................................ 3.0 3.8 1950-60 ........................................ 2.8 3.0 1960-65 ........................................ 3.9 5.1 1965-70 ........................................ 2.1 3.3 1965-66 ........................................ 1966-67 ........................................ 1967-68 ........................................ 1968-69 ........................................ 1969-70 ........................................ 1970-711 ........................................ 4.0 2.1 2.9 0.7 0.9 3.5 6.4 2.3 4.9 2.9 -0.5 1.3 1 First quarter 1971 over first quarter 1970. 4 Output OUTPUT PER MAN-HOUR AND OUTPUT IN THE TOTAL PRIVATE ECONOMY. 1950-70 INDEX 1950 = 100 (RATIO SCALE) 1950 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 U. S. DEPT. OF L A B O R B U R E A U OF L A B O R S T A T IS T IC S 5 H ow P ro d u ctiv ity Has Changed in R e ce n t Q u a rte rs 6 Productivity is quite sensitive to shortrun changes in business activity. Typically, productivity movements follow a certain pattern in the course of a business cycle. When business activity starts to decline, output per man-hour generally drops sharply as capac ity utilization falls below optimum rates. Once cost-cutting efforts get underway, adjust ments are made and the decline in productivity is arrested or reversed. When activity picks up again, output per man-hour increases at a faster rate because of higher capacity utili zation. Then, after a sustained period of production increase, bottlenecks emerge and less efficient resources are brought into use, so that the rate of productivity advance declines. Quarterly movements in 1970 illustrate part of this pattern. The sharpest drop in productivity occurred in the first quarter when output fell and compensating adjustments in man-hours were not sufficient to offset the drop in demand. Although output grew somewhat in the next two quarters, producers cut their staffs and shortened the work week, thus producing higher than average increases in productivity. The General Motors strike interrupted this movement and productivity declined during the fourth quarter. Accompanying a sharp rise in output, productivity growth resumed in the first quarter of 1971. Quarterly percent change at annual rates Year and quarter Output per man-hour Output 1968: 1 s t........................... 2 d .......................... 3 d .......................... 4 t h .......................... 4.9 3.4 2.2 1.8 6.1 7.2 4.3 3.1 1969: 1 s t ........................... 2d .......................... 3d ........................... 4 t h ........................... -0.5 -1.1 1.6 0.8 2.8 2.1 2.5 -1.0 1970: 1 s t ........................... 2d ........................... 3d .......................... 4 t h ........................... -2.5 3.7 4.3 0.1 -3.0 0.7 1.6 -4.4 1971: 1 s t........................... 6.1 7.6 OUTPUT PER MAN-HOUR AND OUTPUT IN THE PRIVATE ECONOMY, QUARTERLY CHANGES AT ANNUAL RATES, 1965-71 PERCENT CHANGE 1965 1966 1967 1968 1969 1970 1971 U.S. DEPT. OF L A B O R B U R E A U O F L A B O R S T A T IS T IC S 7 H o w P ro d u ctiv ity H as C h a n g e d in R e la tio n to W a g e s and U n it Lab o r C o s ts Productivity gains in the last few years have been significantly lower than the aver age increase over the last two decades. Compensation per man-hour (wages, overtime, and fringe benefits), however, has grown at a markedly faster pace. Increases in hourly com pensation in 1968, 1969, and 1970 were the largest since 1951. Sharply increasing advances in unit labor costs since 1965 reflect both of these trends. Small rises in output per man-hour in both 1969 and 1970 combined with large in creases in hourly compensation to produce unusually large increases in unit labor costs. These costs rose by more than 6 percent in both 1969 and 1970, compared with the aver age post-World War II increase of about 2 percent a year. Year-to-year percent change Year ending Compensation per Output per U nit labor _____________________ man-hour_________ man-hour_______ costs 1960-65...................... 1966 1967 1968 1969 1970 1971 .................. ........................... ........................... ........................... ........................... 1 ........................ 4.3 3.9 0.4 5.8 7.6 7.2 7.1 7.4 4.0 2.1 2.9 0.7 03 3.5 2.8 3.7 4.6 6.5 6.2 3.8 63 1 First quarter 1971 over first quarter 1970. 8 ANNUAL RATES OF CHANGE IN WAGES, PRODUCTIVITY, AND UNIT LABOR COSTS, TOTAL PRIVATE ECONOMY, 1950-70 PERCENT CHANGE 1950 51 52 53 54 55 Compensation includes wages and salaries and supplemental payments for employees and an estimate of the salaries and supplements fo r the self-employed. 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 U. S. DEPT. OF L A B O R B U R E A U OF L A B O R S T A T IS T IC S 9 H o w P ro d u ctiv ity , W a g e s , an d U n it L a b o r C o s t s Have Changed in t h e S h o r t T e r m Turnarounds in economic trends usually are easier to identify when quarterly move ments are examined. The sharp rate of increase in unit labor costs during the last half of the 1 9 6 0 ’s slowed somewhat in the second quarter of 1970; this slowdown continued through the first quarter of 1971 and reflected the improvement in productivity growth in the second and third quarters of 1 970 and the further improvement early in 1971. Quarterly percent change at annual rates Year and quarter Output per Compensation Unit labor ____________________ man-hour_______ per man-hour_________ costs 10 1968: 1s t ............... 2 d ............... 3 d ................ 4 th ............... 4.9 3.4 2.2 1.8 11.2 6.1 8.4 8.5 6.0 2.6 6.0 6.5 1969: 1 s t................ 2 d ............... 3 d ................ 4 t h ............... -0.5 -1.1 1.6 0.8 6.2 5.9 8.2 8.8 6.7 7.1 6.5 8.0 1970: 1 s t............... 2 d ............... 3 d ................ 4th -2.5 3.7 4.3 0.1 6.8 5.3 7.7 6.7 9.6 1.5 3.3 6.7 1971: 1 s t................ 6.1 9.9 3.6 PRODUCTIVITY AND LABOR COSTS IN THE PRIVATE ECONOMY, QUARTERLY CHANGES AT ANNUAL RATES, 1965-71 PERCENT CHANGE OUTPUT PER MAN-HOUR — _H L *N o change pTj 1 * t 11__ ] n 1_r—~i I n n 1-— i— > n 1 1 1 U.S. DEPT. OF LABOR BUREAU OF LABOR STATISTICS 11 H o w U n it La b o r C o s t s , P ro fits, an d O th e r P a y m e n ts are R e la te d to P rice C h a n g e s Prices in the United States rose in each of the last 2 0 years, and the rise has accel erated over the last 5 years. In 1 9 6 9, and again in 1970, prices went up faster than in any year since 1951, during the Korean War. Changes in unit labor costs can be considered a result as well as a cause of price rises. A rise in prices causes employee purchasing power to fall, and thus leads to pressure for higher wages. A rise in wages that exceeds productivity growth augments unit labor costs and puts pressure on prices. During the early 1 9 6 0 ’s, the unit labor cost component of price change was slight— mainly because productivity increases kept pace with the growth in hourly compensation. As increases in productivity slowed over the last several years and increases in compen sation speeded up, unit labor costs accelerated and thus represented a larger component of the price rises, particularly in 1 969 and 1970. Year and period 12 Composition of price change in percentage points Annual percent. Other unit change in U nit labor nonlabor U nit profits prices costs payments 1960-65. . . 1.2 0.4 3.9 4.0 1966 1967 1968 1969 1970 2.5 2.9 3.6 4.5 4.7 1.7 2.2 2.8 4.0 3.9 0.2 -0.7 -0.2 -0.5 -1.4 0.6 1.4 1.0 1.0 2.2 ......... ......... ......... ......... ......... COMPOSITION OF PRICE CHANGES, TOTAL PRIVATE ECONOMY, 1950-70 PERCENT CHANGE 10 r— P R IC ES 5 — 0 POINTS CONTRIBUTING TO PERCENT CHANGE lV UNIT PROFITS INCLUDES CORPORATE PROFITS, ESTIMATED PROFITS OF UNINCORPORATED ENTERPRISES AND NET RENTAL EARNINGS OF OWNER OCCUPIED DWELLINGS. _ ?/ OTHER UNIT NONLABOR PAYMENTS INCLUDE DEPRECIATION, INTEREST AND INDIRECT TAXES. U.S. DEPT. OF LABOR BUREAU OF LABOR STATISTICS 13 H o w P ro d u ctiv ity C h a n g e s for M a jo r S e c t o r s a re R e la te d to C h a n g e s in W a g e s , Lab o r C o s ts , and P rice s Variations in output per man-hour trends among industry sectors are closely associ ated with variations in cost and price trends. Increases in output per man-hour in major economic sectors ranged from over 5 percent in utilities, farm, and communications to less than 3 percent in manufacturing. Increases in compensation per man-hour, on the other hand, varied much less. Thus, unit labor costs and prices rose most in those sectors that had low produc tivity gains and rose least or actually declined in those that had high productivity gains. Average annual percent change, 1950-70 Industry sector O utput Compensation Unit per per labor Prices ___________________ man-hour man-hour______ costs_____________ Total private sector........... Selected sectors Farm .................. Communication. . Electric, gas, and sanitary services............. Mining ................ Transportation. . . Trade .................. Manufacturing . . . 14 3.0 5.0 1.9 1.9 5.7 5.5 3.8 4.9 -1.8 -0.6 0.3 0.8 5.4 3.7 3.3 2.9 2.8 5.2 3.8 4.7 4.6 4.6 -0.2 0.0 1.3 1.6 1.8 0.8 0.1 1.2 1.7 1.6 OUTPUT PER MAN-HOUR,HOURLY COMPENSATION, UNIT LABOR COSTS AND PRICES, PRIVATE ECONOMY AND SELECTED SECTORS-AVERAGE ANNUAL PERCENT CHANGE, 1950-70 TOTAL PRIVATE COMMUNICATIONS ELEC. & GAS UTILITIES FARM MINING TRANSPORTATION TRADE MANUFACTURING 0.0 1.0 2.0 3.0 4.0 5.0 6.0 TOTAL PRIVATE COMMUNICATIONS » ELEC. & GAS UTILITIES PRICES UNIT LABOR COSTS FARM MINING TRANSPORTATION TRADE MANUFACTURING 3.0 4.0 5.0 6.0 0.0 AVERAGE ANNUAL PERCENT CHANGE 1.0 2.0 3.0 4.0 5.0 6.0 U. S. DEPT OF LABOR BUREAU OF LABOR STATISTICS 15 H ow Labor H as Shared in t h e N a t i o n ' s P r o d u c t i v i t y Over the long run, labor has shared in the steadily increasing productivity of the Nation. Hourly compensation, adjusted to take account of changes in purchasing power (real hourly compensation), has risen at about the same rate as output per man-hour. Over the past 20 years, both rose an average of 3 percent a year. In 1970, real hourly compensation was almost 80 percent higher than it was in 1950. Although changes in productivity and compensation do not always parallel each other over the short run, they have done so in the last few years. The rate of growth in real hourly compensation had lagged behind the average for the post-War period as a whole; this situation is associated with the low rate of productivity improvement. Average annual percent change Year and period 16 Real compensation per man-hour 1950-70 ................................. 3.0 3.0 1950-60 ................................. 2.8 3.3 1960-65 ............................... 33 3.0 1965-70 ............................... 2.1 2.6 1965-66 ............................... 1966-67 ............................... 1967-68 ............................... 1968-69 ............................... 1969-70 ............................... 1970-711 ............................... 4.0 2.1 2.9 0.7 03 3.3 3.9 2.9 3.3 1.8 1.1 2.4 1 Output per man-hour First quarter 1971 over first quarter 1970. OUTPUT PER MAN-HOUR AND REAL COMPENSATION PER MAN-HOUR, TOTAL PRIVATE ECONOMY/1950-70 INDEX 1950 = 100 (RATIO SCALE) 1950 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 U. S. DEPT. O F L A B O R B U R E A U OF L A B O R S T A T IS T IC S 17 H o w to P ro d u c tiv ity O u tp u t a n d is R e la te d E m p lo y m e n t Year-to-year trends in productivity are closely associated with changes in output. The points on the chart generally form a straight line, except for about five observations which are characterized by similar economic conditions. In 1956 and 1969, the rate of productivity change was at its lowest postwar levels. These situations resulted from a low rate of output growth coupled with continued high levels of employment. The other 3 years— 19 4 9, 1954, and 1 9 5 8 — were recession years. Although there is a close relationship between trends in output per man-hour and output, no similar relationship exists between trends in output per man-hour and em ployment. Some think that a large increase in productivity means a small increase or a decline in employment. Actually, on every occasion since 1947 when productivity grew at a rate of 4 percent or more, employment increased and at an average rate at least as great as when productivity rose less rapidly. One reason for the failure of the simple inverse relationship is that a rise in pro ductivity can reduce costs and stimulate output, thereby giving rise to a potential increase in employment. On the other hand, when output declines, particularly after high levels of activity, employers often are reluctant to adjust employment immediately. Contractual arrangements may cause employment reductions to be postponed, and employers may anticipate difficulties in rehiring trained workers once business improves. 18 ANNUAL PERCENT CHANGES IN OUTPUT AND PRODUCTIVITY IN THE TOTAL PRIVATE ECONOMY, 1947-70 OUTPUT PER MAN-HOUR ANNUAL PERCENT CHANGES IN EMPLOYMENT AND PRODUCTIVITY IN THE TOTAL PRIVATE ECONOMY, 1947-70 OUTPUT PER MAN-HOUR 10.0 -1 8.0 - 6.0 - • 62 48 * 58 • 4.0 - 61 • 49 • • 57 53 " x 65 • * 51 • 54 • • 2.0 - • 55 * 64 > ^ 6 6 68 67 59 • 52 60 • 70 • 56 * 6 9 |--------------- ------------- 1 --------------- 1--------------- 1--------------- 1--------2.0 () 2.0 4.0 6.0 OUTPUT 8.0 EMPLOYMENT U. S. DEPT. OF LABOR BUREAU OF LABOR STATISTICS 19 H ow P ro d u c tiv ity G ro w th R a te s V a ry Industry by Advances in output per man-hour for the private sector as a whole reflect changes in many industries— large improvements, small improvements, no change, and even de clines. The extent of gain during the 1 9 6 0 ’s varied considerably among industries; it ranged from over 10 percent a year to less than 1 percent. The differences in productivity growth rates among industries stem from many sources. For example, the large productivity advances of the 1 9 6 0 ’s in air transportation were produced by the adoption of jets and the great expansion in traffic. On the other hand, the lack of productivity in the footwear industry resulted from the fact that foot wear producers deal with a variety of sizes and styles that have made adoption of mass production methods difficult. Similarly, low productivity gains in copper mining reflected a situation where operators were faced with less and less recoverable ore as the richest veins became exhausted. Although variations between plants within industries are not shown here, they vary both in level and rate of productivity improvement. Some plants may exceed the trend for the industry significantly, and others may lag well behind the average. 20 AVERAGE ANNUAL PERCENT CHANGE GROWTH IN OUTPUT PER MAN-HOUR IN SELECTED INDUSTRIES, 1960-70 Petroleum pipelines 10.0 - Air transportation Hosiery Malt liquors Gas and electric utilities Radio and television sets Raiiroads-revenue traffic Petroleum refining Flour and other grain mill products Major household appliances Aluminum rolling and drawing Concrete products Man-made fibers Iron mining-crude ore Bituminous coal mining Coal mining Copper mining-crude ore Cement, hydraulic Cigars Tires and inner tubes Sugar Paper, paperboard and pulp mills Railroads-car miles Corrugated and solid fiber boxes Iron mining-usable ore Glass containers Confectionery Motor Vehicles and Equipment Canning and preserving Copper mining-recoverable metal Steel Gray iron foundries Primary aluminum Tobacco-total Primary copper, lead, and zinc Cigarettes Footwear 1 970 U. S. DEPT. OF LABOR BUREAU OF LABOR STATISTICS 21 H o w O u tp u t C o m p o n e n ts In d u stry to P e r V a ry M a n -H o u r fro m In d u stry Seemingly similar trends in output per man-hour can represent vastly different trends in output and employment. For instance, productivity grew at a rate of slightly more than 6 percent a year in radio and television manufacturing, railroad transportation, and gas and electric utilities, but each one of these industries tells a different productivity story. High productivity growth in radio and TV represented a big increase in output, accompanied by substantial growth in man-hours, while similar productivity growth in railroads was achieved by a large reduction in man-hours, coupled with a small increase in output. The rate of productivity increase for gas and electric utilities stayed close to the rate of output growth, as man-hours barely changed. These three industries show the major types of high productivity growth situations. They indicate that the implications of productivity growth for employment are closely associated with trends in output. Industries that have large increases in output tend to increase man-hours too, while industries that have small output growth tend to reduce man-hours. 22 ANNUAL PERCENT CHANGE IN OUTPUT PER MAN-HOUR, OUTPUT, AND MAN-HOURS, SELECTED INDUSTRIES, 1960-70 PERCENT CHANGE U.S. DEPT. OF LABOR BUREAU OF LABOR STATISTICS 23 H o w In d u s t r y P r o d u c t iv it y G r o w t h R a t e s C h a n g e O v e r T im e The growth o f output per man-hour in individual industries varies over time, often significantly. A few industries such as electric power and aluminum increased produc tiv ity at a more rapid rate in the 1950’s than in the 1960’s. Most others show much more rapid increases in the 1960’s than in the previous decade. W ithin the 1960’s, trends in output per man-hour varied widely fo r most industries: Productivity growth fell o ff substantially in the latter h a lf o f the decade, largely because o f cyclical fluctuations. These variations were particularly pronounced in industries such as steel, air transportation, and aluminum rolling and drawing. A verage an n u al p e rc e n t c h an g e in d u stry 1 9 6 0 -7 0 ............................. 8 .5 6 .8 .......................................................... 6 .0 4 .4 A ir tra n s p o rta tio n R ailro ad s G as an d 6 .1 7 .6 ..................................... 4 .7 6 .7 t u b e s .......................................... 4 .0 2 .9 e le c tric u tilities B itu m in o u s coal T ires a n d G lass c o n ta in e rs S teel P rim ary 24 1 9 5 0 -6 0 . . . . ..................................... ...................................................................... a lu m in u m 2 9 0 .8 2 .4 0 .7 ............................. 2 .4 5 .8 C ig a re tte s .......................................................... 1.1 0 .5 F o o tw e a r .......................................................... 0 .0 2 .0 GROW TH IN O U T P U T P E R M AN-HO UR FOR S E L E C T E D I N D U S T R I E S . 1 9 5 0 -6 0 A N D 1960-70 AIR TRANSPORTATION GAS AND ELECTRIC UTILITIES RAILROADS BITUMINOUS COAL TIRES AND TUBES GLASS CONTAINERS STEEL PRIMARY ALUM INUM CIGARETTES FOOTWEAR 0 4.0 6.0 8.0 10.0 AVERAGE AN N U AL PERCENT CHANGE *No change U.S. DEPT. OF LABOR BUREAU OF LABOR STATISTICS 25 H o w C h a n g e s in In d u s t r y P r o d u c t iv it y R e la t e to C h a n g e s in E m p lo y m e n t Many people th ink that productivity increases lead automatically to employment declines. The chart shows that this relationship is not necessarily true. Between 1960 and 1970, for example, productivity went up in almost every industry, and employment also grew in almost h alf o f them. Industries that have large productivity increases often have large output increases that lead to an expansion o f employment. This situation occurred in the air transportation and the radio and T V industries. Productivity growth in petroleum pipelines also was associated w ith a large increase in output, but technological improvements enabled this industry, which has been highly mechanized from its origins, to expand production while reducing its already low employment. On the other hand, there were some in dustries, such as railroads and coal mining, where employment reductions were associated w ith high productivity gains in a climate o f stable or declining output. 26 PER CEN T CHANGE IN EM PLOYM ENT 8 .0 - r A N N U A L P E R C E N T C H A N G E IN O U T P U T P E R M A N - H O U R A N D E M P L O Y M E N T , SELECTED I N D U S T R IE S , 1960-70 - ® Air Transportation 6 .0 • Primary Aluminum • Man - Made Fibers • Radio and TV 4.0 2 .0 • Gas and Electric Utilities 0 .0 1 6 .0 Hosiery 1 8 .0 . PER CEN T ■ H— CHANGE 10.0 o /m h Footwear Petroleum Pipelines -2 .0 Coal Mining # -4.0 • Railroads (Revenue) • Cigars U. S. DEPT. OF LABOR BUREAU OF LABOR STATISTICS 27 H o w In d u s t r y P r o d u c t iv it y C h a n g e s a r e R e la t e d t o P r ic e M o v e m e n t s A close inverse relationship exits between changes in prices and changes in produc tiv ity , particularly among manufacturing industries. Prices declined between 1958 and 1968 in industries such as plastics, furs, and household appliances, where the rate o f productivity increase was larger than average. On the other hand, prices increased in industries that had small advances in productivity, such as nuts and bolts. Several exceptions to this general rule can be seen, but the overall relationship is unmistakeable. 28 P E R C E N T C H A N G E IN O U T P U T P E R PERCENT CHANGE IN PRIC£ 50 - - 40 139 M A N U F A C T U R I N G M AN-HOUR AND P R IC ES IN D U S T R IE S . 1958-68 Nuts and Bolts 30 • Dairy Products • • • • 20 • Photo Equip. 10 Autos Steel - 10 10 1 0 - 20 30 60 40 * 70 80 PERCENT H CH A N G E O/MH 90 - Furs -20 Household Appliances •Drugs • Plastics U. S. DEPT. OF LABOR BUREAU OF LABOR STATISTICS 29 H o w U n it e d S t a t e s P r o d u c t iv it y G r o w t h in M a n u f a c t u r i n g C o m p a r e s W it h O t h e r In d u s t r ia l C o u n t r ie s For manufacturing, the only industrial sector fo r which international comparisons are available, output per man-hour levels in the United States are probably still higher than those in other countries. However, the United States productivity growth rate lagged behind the gains registered by other industrial countries between 1965 and 1970. In most cases, and particularly w ith regard to Japan, the gap was substantial. Hourly compensation in other countries also advanced more rapidly than in the United States; it outpaced the productivity growth rate in every case, and caused rises in unit labor costs in each country. U n it labor costs accelerated sharply in most o f the European countries during 1970, mainly because o f exceptionally large increases in hourly compensation. Nevertheless, because o f its slower p roductivity growth, unit labor costs rose more sharply in the United States than in any other country except Canada and Italy. U nit labor costs in four o f the foreign countries were affected by recent changes in currency exchange rates, which must be taken into account i f changes in unit labor costs are to be related to international commercial competition. The dollar values o f the British pound and the French franc were reduced w ith in the 1965-70 period, whereas the values o f the German mark and the Canadian dollar were increased. The effect o f these currency changes was to lower u nit labor costs in the United Kingdom and France— as measured in United States dollars— and to raise them in Germany and Canada. A verage C o u n try O u tp u t p e r __________________________ m a n - h o u r ch an g e, p e r U n it N atio n al m a n - h o u r ____________c u r r e n c y 1 9 6 5 -7 0 lab o r c o s tF U .S . d o llars 2 .1 6 .8 6 .0 3 .9 8 .4 1 .4 1 .4 C a n a d a ................................. ‘ 3 .5 8 .3 4 .6 5 .1 F ra n c e ................................. 6 .6 9 .5 2 .7 0 .6 G e r m a n y ............................. 5 .3 8 .7 3 .2 4 .7 S ta te s B elg iu m . . . . 3 .9 .......................................... 5 .1 9.1 3 .8 3 .8 ..................................... 1 4 .2 1 5 .1 0 .8 0 .8 N e t h e r l a n d s ..................... 8 .5 2 .5 7 .9 1 1 .1 1 0 .6 2 .5 S w e d e n 2 .5 2 .5 6 .2 6 .2 0 .0 0 .0 3 .6 7 .6 3 .8 -0 .2 Italy Ja p a n ............................. S w itz e rla n d 1 U n ite d ................. K in g d o m .. W age earn ers o n ly . p e rc e n t ............................. U n ite d 30 an n u al C o m p e n sa tio n RATES OF CHANGE IN OUTPUT PER MAN-HOUR, HOURLY COMPENSATION, AND UNIT LABOR COSTS FOR ALL EMPLOYEES IN MANUFACTURING, ELEVEN COUNTRIES, 1965-70 UNITED STATES BELGIUM CANADA FRANCE GERMANY ITALY UNITED STATES JAPAN BELGIUM NETHERLANDS CANADA SWEDEN SWITZERLAND FRANCE UNITED KINGDOM 0.0 2.0 4 .0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 GERMANY ITALY UNITED STATES JAPAN BELGIUM NETHERLANDS CANADA SWEDEN FRANCE SWITZERLAND GERMANY UNITED KINGDOM ITALY JAPAN -2.0 NETHERLANDS 0.0 2.0 4.0 6.0 8.0 SWEDEN *Adjusted to U.S. Dollar basis SWITZERLAND UNITED KINGDOM 0.0 2.0 4 .0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 U. S. DEPT OF LABOR BUREAU OF LABOR STATISTICS 31 W h at Trends in P r o d u c t i v i t y are P ro je cte d Projected shifts in the economic structure in the United States over the 1 9 7 0 ’s are not likely to promote a faster rate of productivity improvement, in contrast to the expe rience of the 1 9 5 0 ’s and the early 1 9 6 0 ’s. Employment is expected to expand faster in sectors that have low rates of productivity growth, such as trade, than in those that have high rates of productivity growth, notably agriculture. Thus, even though productivity growth is expected to accelerate in several sectors, shifts in their relative importance will tend to hold the rate of productivity advance projected for the private sector as a whole to the level recorded over the past 2 decades. Average annual percent change muubiry yruup Total private s e c to r......... 32 1965-80 (projected) 1950-70 3.0 3.0 5.5 5.7 5.3 4.1 3.1 3.1 5.5 3.7 2.8 3.3 2.9 Selected sectors Farm ...................................... Communications and public u tilitie s ...................... Mining ................................... Manufacturing ...................... Transportation ...................... Wholesale and retail trade . . . 2.8 PRODUCTIVITY TRENDS TOTAL PRIVATE ECONOMY AND SELECTED SECTORS, 1950-70 AND 1965-80 7.0 AVERAGE ANNUAL RATE OF CHANGE 6.0 5.0 4.0 3.0 2.0 1.0 0 TOTAL Digitized FRASER U.S.forDEPT. OF L A B O R http://fraser.stlouisfed.org/ B U R E A U OF L A B O R S T A T IS T IC S Federal Reserve Bank of St. Louis FARM COMMUNICATIONS AND PUBLIC UTILITIES MINING MANU FACTURING TRANS PORTATION WHOLESALE AND RETAIL TRADE 33 W h a t D istrib u tio n of E m p l o y m e n t is P r o je c t e d The distribution of employment is changing and will continue to do so, largely because productivity and demand change at different rates in different sectors. Employ ment in agriculture dropped substantially between 1 950 and 1970, reflecting improve ments in farm technology that increased the industry’s productivity while demand for farm products remained relatively stable. Consequently, with employment going up in the economy in general, agriculture’s share of total employment dropped sharply. On the other hand, the proportion of employment in services went up between 1950 and 1970 and is expected to grow even more by 1980. Demand for services has been expanding contin uously, while the very nature of service activities limits the introduction of extensive mechanization. At the same time, the proportion of employment has hardly changed for many sectors. For instance, even though employment in manufacturing will continue to grow, this sector will account for about the same proportion of total employment in 1980 as it did in 1950. This is a consequence of the sector’s slightly lower-than-average rate of out put growth combined with its somewhat higher-than-average productivity gain. Trans portation is another sector in which the proportion of employment has remained relatively stable. This stability is the net result of a decline in railroad employment and an increase in trucking and air transportation employment. These changes in the structure of employment will produce a very different distribu tion in 1 980 than the one that prevailed in 1950. Manufacturing will still have the largest share of employment, but it will barely exceed the shares of the service and the trade sectors. 34 Relative importance of employment 1950 1970 1980 Total ...................................... 100 100 100 F a rm ............................................ Communications and public utilities ........................ Mining ........................................ Manufacturing .......................... Transportation ......................... Finance, insurance, and real e s ta te ................................. Wholesale and retail trade . . . . Construction ............................. Services ...................................... 14 5 4 2 2 28 5 3 1 27 4 2 1 27 4 4 21 6 17 6 24 6 23 6 25 7 26 RELATIVE IMPORTANCE OF EMPLOYMENT FOR MAJOR SECTORS, 1950, 1970 AND PROJECTED 1980 FARM COMMUNICATIONS AND PUBLIC UTILITIES MINING MANUFACTURING TRANSPORTATION FINANCE INSURANCE AND REAL ESTATE WHOLESALE AND RETAIL TRADE CONSTRUCTION SERVICES U.S. DEPT. OF L A B O R Digitized FRASER B U R Efor AU OF L A B O R S T A T IS T IC S 1950 1970 S e le cte d B L S P u b lica tio n s on P ro d u ctivity and T e c h n o lo g y Quart erl y Report s: “ Product ivi ty a nd Costs.” ................................................................................................................................Free “ Productivitv, Wage, a nd Prices.” ................................................................................................................ Free In d e x e s o f O u tp u t p e r M an-H our, S e le c te d Industries, 1 9 3 9 a n d 1947 -7 0 (Bulletin 1692). 1971. (In process.) ......................................................................................................................................................... $1 T echnological T rends in M ajor A m erica n In d u stries (Bulletin 1474). 1 9 6 6 ...................... ...................... $1.50 “ Unit L ab o r Costs in Eleven Count ri es ,” M o n th ly L a b o r R ev iew , Augus t 1971 Sales publications may be purchased from regional offices of the Bureau of Labor Statistics at the addresses shown below or from the Superintendent of Documents, U.S. Government Printing Office, Free Washington, D.C. 2 0 4 0 2 . Free publications are available, as long as the supply lasts, from the Bureau of Labor Statistics, U.S. Depart ment of Labor, Washington, D.C. 2 0 2 1 2 . 1603-A Federal Building Government Center Boston, Mass. 0 2 2 03 341 Ninth Ave., Rm. 1025 New York, N.Y. 10001 4 0 6 Penn Square Building 1317 Filbert St. Philadelphia, Pa. 1 9 107 Suite 540 1371 Peachtree St., NE. Atlanta, Ga. 3 0 3 0 9 2 19 South Dearborn St. Chicago, 111. 6 0 6 0 4 1100 Commerce St., Rm. 6B7 Dallas, Tex. 7 5 2 0 2 Federal Office Building 911 Walnut St., 10th Floor Kansas City, Mo. 6 4 1 0 6 4 5 0 Golden Gate Ave. Box 3 6 0 1 7 San Francisco, Calif. 9 4 1 0 2 ■to U. S. GOVERNMENT PRINTING OFFICE : 1971 O - 484-782 (8) . U.S. DEPARTMENT OF LABOR BUREAU OF LABOR STATISTICS WASHINGTON, D.C. 20212 FIRST CLASS MAIL POSTAGE AND FEES PAID U.S. D E P A R T M E N T O F LA B O R O F F I C I A L B U S IN E S S P E N A L T Y F O R P R IV A T E U S E , $300
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