How American Productivity is like the Kentucky Derby

Throughout the first three quarters of the Kentucky Derby on May 7, Shackleford was way out front. However, something interesting happened in the final stretch. Other horses started to break away from the pack, and despite the jockey's strenuous whipping of Shackleford's flanks, the horse could go no faster.

This scene reminded me of the productivity news released by the Bureau of Labor Statistics two days earlier. (What can I say, I am an inveterate data geek.)

The past couple of years have seen incredible gains in the productivity of the average American worker, measured as output per hour worked. 2009 saw an increase of 3.7 percent over 2008. 2010 was even stronger, with productivity increasing by 3.9 percent over 2009 (one quarter saw a jump of 6.7 percent). The nation hasn't seen that level of productivity growth since 2002, when people were recovering from the shock of the prior September. In 2002 people were just learning how to use their iPods and Google was just getting it's legs, so rapid productivity growth that year can, at least in part, be linked to technology gains.

So, what is behind this recent productivity boom?
And more importantly:
Why did productivity growth start slowing toward the end of 2010, falling to only 1.6 percent in the first quarter of 2011?

While it is possible that companies merely cut the "dead weight" in their laborforce with layoffs, I think the answer is more basic. This brings me back to the Derby analogy... With unemployment rates hovering between 9 and 10 percent in 2009 and 2010, I strongly suspect that American workers were working harder for fear of losing their jobs. Plus, with companies cutting their workforce, the remaining workers had to work harder (or smarter) to keep up with corporate demands for the same (or higher) level of output.

In addition, the majority of those who lost jobs and have since been re-employed report being overqualified for their current gig, according to Pew Research. This would undoubtedly give another, temporary, bump to productivity levels.

But with no major advances in technology, American workers are like Shackleton in the home stretch: there is only so much more performance to be squeezed out of a worker before he or she has nothing left to give.

So productivity growth is likely to tail off for the near-term. This might be troublesome for the corporate bottom line, but may be an unexpected boon for the 14 million unemployed Americans. As the economy recovers and demand picks back up, companies that have already stretched their existing workforce as far as they can will have to begin hiring to keep up with demand.

Photo courtesy of TheRichBrooks: http://www.flickr.com/photos/therichbrooks/