WASHINGTON—Workers' productivity in the United States has been on a downslide since 2000, as the U.S. transforms itself into primarily a service economy.
U.S. productivity came in at 11th place, with a score of a mere 2.4 percent, among sixteen of its major trading partners. South Korea and Taiwan outscored everyone, putting them in first and second place with a score of 10.8 percent and 6.9 percent, respectively.
Canada was the only country amongst the sixteen that showed no productivity growth in 2006, according to the latest Bureau of Labor Statistics (BLS) annual rankings released in October.
Media reports suggest that productivity in the U.S. will slow for another few months. Reasons brought forward are a possible recession that will lead to layoffs by a great number of firms. Then, the economy will find new impetus because of new product developments, opening the door for a buying spree, leading to re-hiring or hiring of more labor, improving U.S. productivity statistics in the long run.
Through Different Eyes
The International Labor organization (ILO), an agency under the auspice of the United Nations, views U.S. productivity differently in its report "Key Indicators of the Labor Market," released last month.
"The U.S. still leads the world by far in labor productivity per person employed in 2006, despite a rapid increase of productivity in East Asia where workers now produce twice as much as they did 10 years ago," according to an ILO press release.
ILO also claims that most developed nations lack behind the U.S. in productivity and the gap is getting noticeably bigger. Ireland was second on the list, but far behind the U.S. Next came little Luxembourg, Belgium and then France.
Reasons for this contention are that U.S. workers spend more hours on the job than their counterparts in other developed countries. The report also suggests that American firms are far more successful in using resources, labor and technology.
"A lack of investment in people (training and skills) as well as equipment and technology can lead to an underutilization of the labor potential in the world," suggest the researcher in the ILO press release.
The report suggested that East Asia is closing the gap and showing the fastest increase since 1996. But South-East Asia and the Pacific have a long way to go to go to close the productivity growth shown by labor in the U.S. Sub-Saharan Africa is on the bottom on the list of nations with little or no productivity growth. Productivity growth is twelve times lower in that region than in any industrialized nation.
Gains and Losses
Productivity growth in foreign markets, such as India and China are not quite as detrimental for the U.S. labor market as the media suggests. Researchers found that it is a gray matter, as there are winners and losers.
"Rapid growth of productivity abroad will have mixed effects on the U.S. economy, bringing gains to some groups and loses to others," suggests a team of analysts at the Federal Reserve Bank of New York in a recent report titled.
Researchers analyzed historical information that showed that today's U.S. productivity growth started with the information technology (IT) advances in the mid-1990s. While the IT industry made great strides forward, the textile, clothing and leather industries took a nosedive because of imports from low-cost production countries, such as Pakistan, India, Bangladesh, and China.
The analysts concluded that IT development will take on greater heights in developed nations, when less efficient processes are taken offshore to countries where labor input is cheaper and in abundance. For example, the U.S. off-shored its textile and leather industry to countries with little or no technological capabilities. To make up for the losses in the textile and leather industry, the IT industry developed at a faster pace, improving productivity in the U.S.
Another factor for differences in productivity levels is what the researchers call the "catch-up" phase. The catch-up phase is generally the beginning of a developing nation with a vast pool of unskilled labor that lacks a highly skilled and educated workforce.
"Firms relocate the relatively inefficient stages of their production processes to countries where those stages can be carried out more cheaply," according to a press release announcing the research report release.
Large emerging markets, such as India, Mexico, Russia, and Brazil showed strong productivity growth. This fast productivity growth does not come for developing new products, but from countries that have a vast pool of unskilled labor that are not employable in a technologically developed nation. These countries are in the beginning of a catch-up phase.
Europe and Japan entered the catch-up phase after World War II. The researchers suggest that the productivity growth in Europe and Japan are slowing because their work force has reached a competence level close to that of the United States.
Europe and Japan "are nearing the end of a 'catch-up phase,' after largely closing the technological gap with the United States, the country whose production efficiency defines the world's technology frontier," suggested the Federal Reserve Bank report.
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