After Q1 reported a sharp 2.1% decrease in labor productivity, which was the worst reading since 2007, the second quarter of 2023 presents an encouraging upswing, recording a 3.7 percent increase.
Output increased by 2.4 percent while hours worked decreased by 1.3 percent.
The decline in hours worked was the result of a 1.3-percent decline in average weekly hours, even though employment remained unchanged. This raises concerns about the quality of jobs and the possibility of workers facing reduced hours and, consequently, lower wages.
When comparing the second quarter of 2023 to the same quarter a year ago, the increase in labor productivity is only 1.3 percent. While this reflects a 2.6-percent increase in output, it is disconcerting to note that hours worked increased by only 1.2 percent during this period. This implies that even though productivity improved slightly, the workload on employees did not see a significant reduction.
The report also highlights that unit labor costs increased by 1.6 percent during the second quarter of 2023. This increase is a result of a 5.5-percent rise in hourly compensation and a 3.7-percent increase in productivity. While the rise in compensation may seem positive, it could have contributed to the increase in labor costs. (The balance between compensation and productivity remains a critical concern for maintaining a healthy labor market.)
During the current business cycle, which started in the fourth quarter of 2019, labor productivity has grown at an annualized rate of only 1.4 percent. This rate falls below the long-term historical average rate since 1947 of 2.1 percent, indicating a slowdown in productivity growth.
In the manufacturing sector, while there was a notable increase of 4.0 percent in labor productivity during the second quarter of 2023, this comes after a decline of 1.0 percent in the same quarter a year ago. The slow productivity growth in this sector during the current business cycle raises concerns about the sector’s overall health and competitiveness.
The main area of concern centers around the troubling decline in labor productivity over the years. Since 2005, labor productivity has been on a steady decline, and the post-pandemic era has only aggravated the situation.
