This week, the Bureau of Labor Statistics released the productivity report for fourth quarter 2016, and the results were not edifying. They show that productivity increased by just 1.3% in the quarter and only 0.2% for 2016 as a whole, meaning that this was the worst annual rate of productivity growth since 2011. Meanwhile, unit labor costs, or the cost of employing a worker relative to their ability to produce, increased by 1.7% in 2016, against a 2.1% increase in selling prices, thereby helping to provide a little extra space for profit margins in the quarter. Unfortunately, this weakening trend in productivity has continued for almost a decade now. As such, it has become relatively difficult to find an economist who has anything good to say about productivity. Despite this, in this week’s Economics Weekly, we suggest one reason things might be starting to look up from here for productivity—demographics.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.