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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

Output

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 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
1968:
1s t ...............
2 d ...............
3 d ................
4 th ...............

6.0
2.6
6.0
6.5

-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................




11.2
6.1
8.4
8.5

1969:
1 s t................
2 d ...............
3 d ................
4 t h ...............

10

4.9
3.4
2.2
1.8

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

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. . .

12

0.4

3.9

4.0

1966
1967
1968
1969
1970




1.2
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

Output per
man-hour

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

16




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

*
4.0 58
•

61

•
49

53

•
• 57

" 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

1 9 5 0 -6 0

. . . .

.....................................

......................................................................

0 .8

2 .4

0 .7

2 .4

5 .8

..........................................................

1.1

0 .5

F o o tw e a r




.............................

C ig a re tte s

24

a lu m in u m

2 9

..........................................................

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

an n u al

p e rc e n t

ch an g e,

C o m p e n sa tio n
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

U n ite d

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 .

30



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.........

1965-80
(projected)
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 . . .

32




1950-70

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

 L A B O R
U.S. DEPT. OF
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.
Relative importance
of employment

1980

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 ......................................




1970

Total ......................................

34

1950

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

DigitizedE A U OF L A B O R S T A T IS T IC S
B U R for FRASER


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

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Washington, D.C. 2 0 4 0 2 . Free publications are available, as long as
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