All through the 20th century, regular technological and organizational improvements, together with the buildup of productive capital, elevated labor productiveness at a gentle fee of round 2 % per 12 months. Nonetheless, the previous twenty years have witnessed a slowdown in labor productiveness, measured as worth added per hour labored. This slowdown has been notably stark within the manufacturing sector, which traditionally has been a number one sector in driving the productiveness of the combination U.S. financial system. What makes this slowdown notably puzzling is the truth that manufacturing accounts for almost all of U.S. analysis and growth (R&D) expenditure. Regardless of a number of latest research (see, for instance, Syverson [2016]), a lot stays to be uncovered concerning the nature of this slowdown. This publish illustrates a key aspect of the thriller: the productiveness slowdown seems to be pervasive throughout industries and throughout companies of varied sizes.
The Labor Productiveness Slowdown in U.S. Manufacturing
We begin with the chart under, which reveals labor productiveness of the U.S. manufacturing sector from 1987 to 2022, based mostly on the industry-level information from the Bureau of Labor Statistics (BLS). The index of labor productiveness within the U.S. manufacturing sector is outlined as the actual worth added of the {industry} per hour of labor, the place the {industry} is assessed on the NAICS three-digit degree. The chart reveals the ensuing collection each based mostly on the present share of every {industry} within the complete employment of the sector (strong blue line) and based mostly on these {industry} shares fastened to their 1987 values (dotted blue line).
Labor Productiveness Slows Down Starting within the Late 2000s
Notes: This chart reveals the combination labor productiveness index from the BLS. It calculates the expansion in every {industry} labeled on the NAICS three-digit degree and computes the combination productiveness index via the share of every {industry} in complete employment in manufacturing, as outlined by labor hours. The preliminary values are normalized to be equal to 100 in 1987.
The stagnant productiveness because the late 2000s contrasts with the speedy development over the previous decade (late Nineties and early 2000s), which was consultant of the sector’s historic expertise all through the late nineteenth and twentieth century. The change within the development fee is stark. Because the desk under reveals, labor productiveness grew at a median of three.4 % per 12 months from 1987 to 2007, whereas measured development in labor productiveness was –0.5 % from 2010 to 2022, implying a slowdown of three.9 share factors per 12 months.
Various Measurement Approaches Present the Slowdown in Productiveness Development
| Development Measure | 1987-2007 Annual Development | 2010-22 Annual Development |
|---|---|---|
| Labor productiveness | 3.4% (3.3%) | -0.5% (-0.6%) |
| TFP | 1.4% (1.4%) | 0.1% (0.1%) |
| Labor productiveness of main industries | 6.5% (6.6%) | -0.6% (-0.7%) |
| Labor productiveness of following industries | 1.9% (1.7%) | -0.6% (-0.5%) |
| Income LP of public companies | 3.5% (3.6%) | -1.3% (-1.2%) |
| Income LP of main public companies | 3.7% (3.8%) | -0.5% (-0.4%) |
| Income LP of following public companies | 2.6% (2.8%) | -1.3% (-1%) |
Supply: Authors’ calculations based mostly on the Compustat and Bureau of Labor Statistics (BLS) Productiveness Accounts.
Notes: LP and TFP stand for labor productiveness and complete issue productiveness, respectively. The expansion charges contained in the parentheses report the values if the {industry} shares are fastened at their preliminary values in 1987. The info underlying the primary 5 rows are calculated based mostly on the BLS productiveness accounts and the information for public companies comes from the Compustat information set. Main industries are the highest 4 industries by way of their common labor productiveness development within the 1987-2007 interval, and the next industries are the rest of the industries. The main public companies are the highest 4 companies in every {industry} yearly based mostly on their common share of Compustat {industry} employment within the two years over which the expansion fee is calculated. The numbers in parentheses comprise the expansion fee fixing the preliminary {industry} shares in every case.
A pure first query is whether or not this slowdown stems from a gradual shift of manufacturing in direction of underperforming manufacturing industries or the slowdown is going on inside every manufacturing {industry}. The chart under reveals that the slowdown seems amongst each the fastest- and slowest-growing industries. Once we consider the 4 fastest-growing industries by way of labor productiveness from 1987 to 2007 (computer systems and electronics, textile mills, transportation tools, and electrical tools), these industries nonetheless exhibit a productiveness slowdown from 2010 to 2022, from 6.5 % within the pre interval to -0.6 % in the publish interval.
Productiveness Development in Each Chief and Follower Industries Slows Down Starting within the Late 2000s
Notes: This chart reveals the combination labor productiveness index from the Bureau of Labor Statistics (BLS) and splits by the 4 fastest-growing industries from 1987-2007 (“chief industries”) and the remaining (“follower industries”). It calculates the expansion in every {industry} on the NAICS three-digit degree and computes the combination productiveness index inside every group via the share of every {industry} in complete employment in manufacturing, as outlined by labor hours. The preliminary values are normalized to be equal to 100 in 1987.
Thus, most manufacturing industries, even these exhibiting stellar productiveness positive aspects within the Nineties, suffered a sustained productiveness slowdown after the Nice Recession. This reality is especially puzzling in mild of the widespread adoption of automation equipment and robots (see, for instance, Acemoglu and Restrepo [2020], which one may count on results in an increase in labor productiveness.
Complete Issue Productiveness vs. Labor Productiveness
One of many main drivers of labor productiveness is the quantity of productive capital accessible to every employed employee in every {industry}. Is the autumn in manufacturing labor productiveness a byproduct of doubtless weaker capital funding within the sector? To analyze this query, we look at the developments in manufacturing complete issue productiveness (TFP), which is a measure of labor productiveness past what will be accounted for by the amount and high quality of capital and high quality of labor. If the labor productiveness slowdown is simply pushed by weak capital investments, then TFP ought to nonetheless be rising.
The following chart reveals the developments in manufacturing TFP over the identical interval (1987-2022). Evaluating the 2 charts, we nonetheless discover a stark distinction between the noticed charges of development in TFP earlier than and after the Nice Recession. The common annual development of TFP falls from 1.4 % from 1987-2007 to 0.1 % from 2010-22. With each labor productiveness and TFP exhibiting vital declines within the industry-level information, we flip to microdata on the firm-level to additional discover the character of this decline.
Complete Issue Productiveness Development Additionally Slows Down Starting within the Late 2000s
Notes: This chart reveals the combination complete issue productiveness (TFP) index from the BLS. It calculates the TFP development in every {industry} labeled on the NAICS three-digit degree and computes the combination productiveness index via the share of every {industry} in complete employment in manufacturing, as outlined by labor hours. The preliminary values are normalized to be equal to 100 in 1987.
Productiveness Slowdown from a Agency-Degree Perspective
A number of of the reasons proposed for the productiveness slowdown level to an increase within the within-industry focus and the emergence of famous person companies (Autor et al. 2020). For instance, one concept focuses on a productiveness hole between frontier companies and most different companies (as in, for instance, Klenow, Li, and Naff [2019] and Akcigit and Ates [2023]). The thought is that, whereas the main companies proceed to innovate and develop in productiveness and dimension, most remaining companies have fallen into productiveness stagnation. The hole between the main and laggard companies finally undermines the incentives of the frontier companies to proceed to maintain quick productiveness development, because the prospects of competitors from the opposite companies fades as a result of their stagnation.
The following chart presents different measures of the labor productiveness of the U.S. manufacturing sector based mostly on the accessible information on the steadiness sheets of U.S. public companies in manufacturing (the CRSP/Compustat information set). Publicly owned companies usually are usually bigger and extra productive than privately owned companies.
Manufacturing Productiveness Slowdown Stems from Productiveness Slowdown on the Agency Degree
Notes: The left panel reveals the revenue-labor productiveness of Compustat companies towards gross output labor productiveness measured from the BLS information, following the identical process as earlier charts, with fastened and ranging {industry} shares with industries labeled on the NAICS three-digit degree. The suitable panel performs the identical process and splits Compustat companies into chief and follower companies, as outlined by the highest 4 companies in every NAICS3 class by way of common employment. The preliminary values are normalized to be equal to 100 in 1987.
So far, now we have measured labor productiveness as worth added produced per hour labored. Nonetheless, within the Compustat information, we solely observe firm-level output by way of income (a measure of gross output as an alternative of worth added) and firm-level labor inputs by way of the variety of employees. Within the left panel of the chart, we present the developments for manufacturing labor productiveness based mostly on gross output per employee within the official BLS information set, which intently mirror the these discovered utilizing worth added per hour. The left panel moreover reveals the identical measure among the many public companies within the {industry} noticed within the Compustat information. We discover that the general public companies exhibit an identical slowdown in labor productiveness as seen within the aggregates from the BLS information. From 1987 to 2007, the typical annual actual income development per employee averaged 3.5 % for companies within the Compustat pattern, in keeping with the general change in labor productiveness. Within the 2010-22 interval, this measure of productiveness dropped to – 1.3 %.
The suitable panel splits this pattern additional by trying on the 4 largest companies in every {industry}, outlined by employment, and the remaining. Even throughout the main companies in every {industry}, the patterns stay intact: a interval of quick development within the Nineties and early 2000s is adopted by a interval of stagnation beginning within the mid-2000s. Comparable patterns emerge after we as an alternative use the highest two companies or the very high agency in every {industry} (not pictured).
Main companies seem to have performed a bigger position within the productiveness increase within the Nineties. For these companies, the typical labor productiveness development within the 1987-2007 interval was 3.7 %, whereas follower companies in Compustat skilled development of two.9 % in the identical interval. From 2010 to 2022, each main companies and following companies expertise comparable productiveness development declines. Main companies present a median development fee of –0.5 % within the second interval, a 4.2 share level discount, whereas follower companies expertise –1.3 % development, additionally a 4.2 share level discount. Thus, the productiveness slowdown seems to be a broad phenomenon affecting all industries and all companies in every {industry}. These findings diverge from the latest findings within the literature that target massive companies separating from smaller companies (see, for instance, Andrews et al. [2015]). Whereas there may be proof of this separation, this appears to be like to be largely coming from development within the Nineties and early 2000s.
Summing Up
The slowdown in labor productiveness in manufacturing is among the most vital long-run points in the USA that is still puzzling to economists and policymakers. This publish factors out that this growth is frequent throughout industries and companies, with even the fastest-growing industries and the most important companies experiencing the slowdown. It’s left to lecturers and policymakers to clear up the thriller about what elements are behind the ever-present slowdown in productiveness.
Danial Lashkari is a analysis economist in Labor and Product Market Research within the Federal Reserve Financial institution of New York’s Analysis and Statistics Group.
Jeremy Pearce is a analysis economist in Labor and Product Market Research within the Federal Reserve Financial institution of New York’s Analysis and Statistics Group.
The right way to cite this publish:
Danial Lashkari and Jeremy Pearce, “The Mysterious Slowdown in U.S. Manufacturing Productiveness ,” Federal Reserve Financial institution of New York Liberty Avenue Economics, July 11, 2024, https://libertystreeteconomics.newyorkfed.org/2024/07/the-mysterious-slowdown-in-u-s-manufacturing-productivity/.
Disclaimer
The views expressed on this publish are these of the writer(s) and don’t essentially mirror the place of the Federal Reserve Financial institution of New York or the Federal Reserve System. Any errors or omissions are the accountability of the writer(s).
