An often heard complaint from workers and other commentators is that the American worker is in a “dire” situation. Wages have been “hopelessly” stuck at 2 percent year over year (Y/Y) growth since late 2009.
The debate was reignited today with the BLS’ productivity and unit labor cost numbers. Overall, productivity came in at 2.5 percent and unit labor costs were 0.6 percent (Q/Q annualized).
American worker hourly earnings
The relatively weak unit labor costs and strong productivity growth had some commentators arguing that the American worker continues to be taken advantage of.
What do the numbers actually show?
The following two figures plot the productivity and unit labor cost growth on a 4Q moving average basis of the annualized Y/Y numbers.
Addressing first productivity, when including today’s 2.5 percent figure, the 4Q moving average productivity number stands at about 1 percent, which is barely above the lowest quartile. This area is highlighted by the square area farthest to the right.
If one extends the horizon back to 2007, it’s pretty clear that productivity growth of the American worker is has been weak for a while, approaching the ten year mark.
(As a note, dividing a data set into quartiles simply divides the numbers into four categories, from highest to lowest).
Switching to the second figure below – unit labor costs – this figure shows unit labor costs that are on the upper end of the cost horizon recently (highlighted by the blue box).
American worker: Productivity
In fact, if today’s number had come in a little higher, unit labor cost growth would have jumped into the highest quartile, meaning that unit labor cost was growing at a historically fast rate.
What’s interesting about the charts?
Common sense business and economic thinking argues that wages follow productivity growth.
What’s interesting is that at a time when American productivity growth continues to be relatively weak, unit labor costs are growing above average.
Essentially, instead of being taken advantage of by hypothetical corporate greed, the American worker is coming out ahead. Their labor costs are growing faster than their productivity growth.
How long can this go on? Simply put, not very long if one has any concern for the long-term health of the American economy. American workers need to become more productive faster, or stop complaining about a “measly” 2 percent wage growth.
As further evidence on the issue, the following plots productivity growth and unit labor cost growth on an international basis.
American worker: Productivity gains
Interestingly, the same conclusion holds. Far from behind taken advantage of, American workers are being treated about the way they should be (maybe a little bit low). They’re about middle of the road in productivity growth and about middle of the road in terms of unit labor cost growth.
Overall, contrary to popular belief, the American worker is doing fine when inspecting the growth of American productivity on a domestic and international basis.