In a report released last week, the Bureau of Labor Statistics (BLS) found that Multi-Factor Productivity rose in only 21 of the 86 categories of the manufacturing industry in 2015. Unlike labor productivity which is more easily calculated, Multi-Factor Productivity measures attempt to take account of all business inputs (including labor). Capitalism is by its nature the combination of all these factors that produces rising living standards and sustainable growth.
The weak results should not be surprising given the business climate of that year. Manufacturing in particular had already been captured by a sustained downturn, overall a low-grade contraction that reduced the demand for output below already weakened levels (going back to 2012). In that sense, productivity is relatively straight-forward and simple.
Combined inputs kept rising in 2015 as compared to prior years, whereas output was less likely to have gained. The net result cannot be anything other than lower productivity. The BLS report, however, doesn’t give us an idea of degree or intensity, merely the broad nature (the number of industries) of the slowdown across the whole sector.
Nor does it attempt to address why manufacturers would remain so apparently complacent in the face of this negative situation. In more typical fashion, faced with reduced output and rising inputs, any rational business would immediately seek redress usually in the form of labor cutbacks. That didn’t happen, of course, as instead manufacturing businesses by and large chose to absorb the downturn in reduced profits.
Such a decision may at first seem irrational, but that might propose instead other factors requiring consideration. To try to answer this question, it is helpful to go back and examine strictly labor productivity in the manufacturing industry.
While economy-wide productivity has presented economists more than a little conundrum, in this sector the disturbance is crystal clear.
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