Labor Productivity and Costs, a Big Inflation Problem in Pictures

Productivity and Costs Revised

Please consider the BLS report on Fourth Quarter 2022 Productivity Revised

• Nonfarm business sector labor productivity increased 1.7 percent in the fourth quarter of 2022 as output increased 3.1 percent and hours worked increased 1.4 percent. (All quarterly percent changes are seasonally adjusted annual rates.) 
• This 1.7-percent increase in labor productivity for the fourth quarter of 2022 is 1.3 percentage points below the preliminary estimate of a 3.0-percent increase. 
• From the same quarter a year ago, nonfarm business sector labor productivity decreased 1.8 percent, reflecting a 0.7-percent increase in output and a 2.6-percent increase in hours worked. 
• Annual average productivity decreased 1.7 percent from 2021 to 2022. This is the largest annual decline in the measure since 1974, when productivity also decreased 1.7 percent. 

Unit labor Costs 

• Unit labor costs in the nonfarm business sector increased 3.2 percent in the fourth quarter of 2022, reflecting a 4.9-percent increase in hourly compensation and a 1.7-percent increase in productivity. 
• Unit labor costs increased 6.3 percent over the last four quarters. 

Revisions

• Third quarter, fourth quarter, and annual average data for 2022 were revised to incorporate regular updates of source data on output and compensation published by the Department of Commerce on February 23, 2023. 
• Quarterly measures of real hourly compensation in 2022 were revised to reflect updates to seasonally adjusted data from the BLS Consumer Price Index program released on February 14. 
• Quarterly and annual measures of hours worked, productivity, and related series were revised historically for all major sectors. 
• From 2018 to 2022, the revisions reflect incorporation of revised BLS Current Employment Statistics (CES) program data for employment and hours of employees on nonfarm payrolls. 
• Notable revisions in those data reflect upward revisions due to both the benchmarking of CES employment to the Quarterly Census of Employment and Wages in March 2022—which is wedged in over the prior 12 months—and the incorporation of actual business births and deaths during this period.

Labor productivity Index and Unit Labor Costs Percent Change

2022 Productivity Numbers 

• Q1: -6.1
• Q2: -3.8
• Q3: +1.2
• Q4: +1.7
• 2022:  -1.7 percent, the largest annual decline in the measure since 1974, when productivity also decreased 1.7 percent. 

What’s Going On?

• Aging boomers are retiring or working less hours necessitating the need for more part time workers. 
• The increase in jobs largely reflects an increase in lesser skilled and more part time workers. 
• This is coupled with the quiet quitting meme: Quiet Quitting, Are You Doing Only What’s Necessary at Work and No More?
• Quiet quitting morphed into a new meme “Act your wage.”

One of my followers on Twitter commented: “Declining productivity is due to the decades long decline in the marginal productivity of debt. This makes full time, full benefits jobs impossible to sustain. It’s a feature, not a bug, of a fiat currency system in terminal decay.“

Strong Labor Market?

I stick with my assessment that this allegedly “strong labor market” is mainly a boom in part time employment and people taking extra jobs just to make ends meet.

Declining productivity is the result.

Regardless, it’s clear that productivity is an inflationary problem and it will stay that way.

Prudential Survey

Work Your Wage Meme

For many workers the days of unpaid overtime and weekend work is gone. Work your wage has replaced quiet quitting as the new meme forcing employers to add more people to finish projects.

For discussion, please see Act Your Wage is the New Meme as Career Ambitions Plunge

Note the attitude of zoomers. 48 percent say their attitude is primarily focused on getting the job done. 

Only 43 percent of zoomers go above and beyond. But 69 percent of boomers say they  they go above and beyond. 

I think the Fed has a big role in this attitude change.

Is the “American Dream” of home ownership in the average Zoomer’s means?

The Fed does not count home prices as inflation. It fueled another huge bubble trying to produce what was there but it could not see. pic.twitter.com/ZmZkYsIoJT

— Mike “Mish” Shedlock (@MishGEA) March 2, 2023

Demographically Sobering Thoughts on US Employment in the Next Five Years

Civilian Noninstitutional Population Detail Notes

• The number of people age 65+ is rising rapidly
• The number of people age 55-64 is in decline

Key Participation Rates

• Age 55-59: 72.7
• Age 60-64: 58.5
• Age 65+: 19.3

People are rapidly shifting from high participation rates to much lower ones.

For 2023, the CBO estimates a 2023 increase in the age 65+ population of 2 million and that 2 million accounts for the total rise in population. 

How can this possibly not hurt productivity? And if anything, that trend will increase.

For discussion, please see Demographically Sobering Thoughts on US Employment in the Next Five Years

Strong Jobs Illusion

The strong jobs meme is nothing more than an illusion of declining productivity due to boomer demographics, changing attitudes, quiet quitting, and act your wage memes, resulting in a demand for any workers, increasingly part time, that employers can get.

I have never heard it phrased that way before, but that is precisely what’s going on in a single sentence.

The result is obviously inflationary. And despite the fact that wages are not keeping up with inflation, the Fed’s only recourse is to purposely cause a recession. 

Is Wage Growth Too High? Let’s Explore the Idea With Pictures

In case you missed it, please see Is Wage Growth Too High? Let’s Explore the Idea With Pictures

National Productivity Day

June 20, is national productivity day. 

It’s dedicated to acknowledging the importance of building good productivity habits. I can’t wait.

Productivity and Recessions

Productivity increases in recessions because corporations demand more from workers and fire the least productive ones.

Meanwhile, the Biden administration is doing everything possible to stoke inflation by student loan forgiveness, promotion of union jobs, climate policy, and a myriad of regulatory nonsense all of which will decrease productivity.

Good luck with that mix on corporate profits, the stock market, and the problems the Fed created on its own accord.

This post originated on MishTalk.Com.

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