Fact of the Week: US Labor Productivity Is Rising, Potentially Suggesting Another Productivity Boom in This Decade
Source: Aaron Back, “The U.S. Needs a Productivity Miracle. It Might Just Get One.” The Wall Street Journal, December 26, 2024.
Commentary: Economic growth is essential for reducing the national debt, and labor productivity, measured as output per hour worked, is one of the most essential tools for stimulating growth. However, U.S. labor productivity has been relatively unexceptional for many years. Unlike periods of high growth such as the 1960s, when productivity grew at an annual rate of 3.4 percent, on average, the U.S. Congressional Budget Office recently projected that U.S. productivity would grow at just 1.4 percent annually over the next two decades. However, there are some positive signs that U.S. labor productivity may be on a much-needed upswing. Average annual growth over the past five years hit 1.9 percent in the third quarter of 2024, far greater than the lows experienced in the late 2010s. This boom in productivity, like others in recent history, is driven by technological advances, such as investment in artificial intelligence, as well as the large-scale worker relocation that occurred during the pandemic. Though this productivity boost is encouraging, the federal government must continue to push for policies that advance productivity, including machinery and equipment expensing for small and medium-sized enterprises and increasing the R&D tax credit.
