Productivity goes bust

WHAT'S surprising about the disappointing slowdown in productivity is that, by all outward signs, it ought to be booming. Productivity is economic jargon for efficiency, and robust productivity growth is the engine of higher living standards. We routinely associate faster productivity with major technology advances (the steam engine, electricity, jet travel), but higher productivity also results from competition (stronger firms displace weaker rivals) and better-educated workers (they can handle tougher tasks).

There's no doubt that the growth of US labour productivity - as measured by output per hour worked - has slowed dramatically. Since 2010, it has averaged 0.7 per cent annually, according to Jason Furman, chairman of the White House Council of Economic Advisers. That's less than one-third the average annual rate of 2.3 per cent from 1948 to 2007.

Nor is there much doubt that, if continued, poor productivity gains bode ill. Beyond semi-stagnant living standards, a slow-growing economy also squeezes tax revenues. There is an intensifying collision between private and public wants. It is harder to reduce government budget deficits or pay for added public services.