America's Plunging Worker Productivity Explained (In 1 Depressing Chart)

Tyler Durden's picture

The US became an unsustainable service sector based economy from the 1970s onward when service sector employment diverged from manufacturing without a corresponding boost in productivity. Even Alan Greenspan has warned that America is "in trouble basically because productivity is dead in the water..." There are numerous reasons for this plunge in worker-productivity, from perverted inventives not to work to unintended consequences of monetary policy enabling zombies, but perhaps the most critical driver is exposed in the following dismal chart...

51% of total time spent on the Internet is on mobile devices - in 2015, first time ever mobile is #1 - to make a total of 5.6 hours per day snapchatting, face-booking, and selfying...

Source: @kpcb

So, while every effort can be made by Ivory Tower academics to solve the problem of American worker productivity, perhaps it can be summed up simply as "Put The Smart-Phone Down!"

As we detailed previously, adjusting for the WWII anomaly (which tells us that GDP is not a good measure of a country’s prosperity) US productivity growth peaked in 1972 – incidentally the year after Nixon took the US off gold.

The productivity decline witnessed ever since is unprecedented. Despite the short lived boom of the 1990s US productivity growth only average 1.2 per cent from 1975 up to today. If we isolate the last 15 years US productivity growth is on par with what an agrarian slave economy was able to achieve 200 years ago.

In addition, the last 15 years also saw an outsized contribution to GDP from finance. If we look at the US GDP by contribution from value added by industry we clearly see how finance stands out in what would otherwise have been an impressively diversified economy.

With hindsight we know that finance did more harm than good so we can conservatively deduct finance from the GDP calculations and by doing so we essentially end up with no growth per capita at all over a timespan of more than 15 years! US real GDP per capita less contribution from finance increased by an annual average of 0.3 per cent from 2000 to 2015. From 2008 the annual average has been negative 0.5 per cent!

In other words, we have seen a progressive (pun intended) weakening of the US economy from the 1970s and the reason is simple enough when we know that monetary policy broken down to its most basic is a transaction of nothing (fiat money) for something (real production of goods and services). Modern monetary policy thereby violates the most sacred principle in a market based economy; namely that production creates its own demand. Only through previous production, either your own or borrowed, can one express true purchasing power on the market place.

The central bank does not need to worry about such trivial things. They can manufacture the medium of exchange at zero cost and express purchasing power on the same level as the producer. However, consumption of real goods and services paid for with zero cost money must by definition be pure capital consumption.

Do this on a grand scale, over a long period of time, even a capital rich economy as the US will eventually be depleted. Capital per worker falls relative to competitors abroad, cost goes up and competitiveness falls (think rust-belt). Productive structures cannot be properly funded and the economy must regress to align funding with its level of specialization.

In its final stage, investment give way for speculation, and suddenly finance is the most important industry, pulling the best and brightest away from every corner of the globe, just to find more ingenious ways to maximise capital consumption.

As the slave economy got perverted by incentives not to work, so does the speculative fiat based economy, which consequently create debt serfs on a grand scale.

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opt out's picture

I counted no fewer than three (3) depressing charts. It must be worse than we thought.

zeropain's picture

Why is it a given that productivity is good.  Maybe the amish are fight tobe suspicious of progress.

herkomilchen's picture

You'll find productivity good when you want a cold beer or lifesaving heart surgery for your daughter or 40-hour work weeks in an office rather than an 80-hour work weeks in a mine.

The misery of life endured compared to the Amish is attributable to differences in values.  It's about the disease of socialism and government running rampant in the modern world.  It's not about particular levels of technology or productivity.

LykeMe's picture
LykeMe (not verified) herkomilchen May 2, 2016 7:23 PM

There's another aspect as well that clearly explains the malaise in America. It's this:

nmewn's picture

"Dey pretend to pay and we pretend to vork." - old Soviet truism.

Saddam Miser's picture

iHope one day they make smarter phones, for dumber people.

TBT or not TBT's picture

It is hard to know what was going in any kind of detail in the 70's and before.  The wrinkles just probably jump out  at us now because of HD.  4K is rolling out folks.  

Yen Cross's picture

 Q-Welcome to the " disheveled" WallyWorld.

LetThemEatRand's picture

"The very existence of flamethrowers proves that sometime, somewhere, someone said to themselves, 'You know, I want to set those people over there on fire, but I’m just not close enough to get the job done.'”  - George Carlin.

NoPension's picture

I'm still amazed that Uncle Sam can print at will, hand it out, real stuff gets purchased with it. " IT" or fiat digibux cost no production, get recorded as debt, and we keep chugging along!
When my eyes opened, I figured we would be burnt to the lug nuts by now. If it doesn't happen soon, I might just give up and give in. Start watching DWTS and join the FSA.

herkomilchen's picture

Yeah, plunging productivity to the problem.  But the cause is not "too much" networking on social media.  Or "too much" automation in manufacturing.

The cause is taxation and legislation.  It's tariffs, wage controls, union laws, and Obamacare.  It's a million regulations, inspections, permits, lobbyist payments, and lawyers needed to put up a single smokestack.  It's government cartelization of finance, pharmaceuticals, telecommunications, and utilities outlawing competition.  It's central bank manipulations massively distorting price signals on every single good in the economy, including money itself, for what are productive uses vs. not.  It's inflation pervasively transferring wealth away from the most productive to the least productive.

All that is the cause of plunging productivity.

LetThemEatRand's picture

The oligarchs work in mysterious ways.  

CJgipper's picture

"you pretend to pay me, and I pretend to work."

Falcon49's picture

Technology when implemented correctly should increase productivity.....but, have you noticed that when implemented it is done is such a way as to avoid, negate or reduce the efficiency that the technology brings.  For instance, technology when used should drive productivity up (and it does) but no in the area of real production... instead it allows for ever greater inefficiencies in the system....excess labor is keep occupied with "bureaucratic busywork"...actual productivity cannot be measured when 70% of the labor is applied to mindless busy work.  This is all about keeping the labor excess force occupied and in jobs processing an endless stream of digital paperwork and through interfaces/application designed to bring productivity to a standstill.       

herkomilchen's picture

That's right.  Malinvestment of technology decreases productivity.

For example, diverting $10M in technology spending from product improvement into labor cost reduction only made necessary artificial labor cost burdens imposed by government.

For example, diverting $100M in tax dollars from those who earned it and would have reinvested it, to instead buy the IRS a better computer system so it can more efficiently enforce an impossible to comply with tax code and prosecute and imprison more people who produce.

mary mary's picture

I think a lot of time spent on phones and on computers is responding to endless government regulation.  Every town, county, State, District, and USA Department now has endless computer-generated forms you have to fill out to "get permission" to do anything.  So you fill out the forms and submit them.  The paper-shufflers at the town, county, State, District, and Department don't even read them the first time.  They just send you back a second checklist of their standard questions in addition to the form.  So then you have to call them and also do all your work over a second time.  Maybe a third.  This is what Socialism looks like and how it works.  And of course all those government regulators vote for the candidates who promise to "protect everything" more, by creating even more paperwork.

CJgipper's picture

To wit:  I spent two days this week getting emissions checks and car registrations done.

general ambivalent's picture

You described Tinder perfectly.

Pabloallen's picture

You pretend to pay me, I pretend to work. Is the true reason.

JuliaS's picture

"Shouldn't the long-term goal of any society be complete unemployment?"

- Doug Stanhope

proV's picture

People are too greedy on the outside and have too much feeling of guilt on the inside for it to happen. "You need to suffer first to be happy later." is standard thinking of such a splitted mind.

Bob Black also wrote something about "unemployment". The abolition of work:

Laplacian2003's picture

Powerpoint will be the demise of productivity in western civilization.  It gives people who otherwise have no useful skills, an official sanctioned tool to annoy the shit out of others who do. 

Ballin D's picture

i spend 8 hours a day in front of a monitor producing for my employer. That covers the computer quota for 3-4 people right there.

LetThemEatRand's picture

Is this the opening of a japanese porno?

general ambivalent's picture

This is my boss, only not producing. How did he come to manage a construction project? He has no clue what to do.

Wow72's picture

"monetary policy broken down to its most basic is a transaction of nothing (fiat money) for something (real production of goods and services). Modern monetary policy thereby violates the most sacred principle in a market based economy; namely that production creates its own demand."

Thats it. It started to unravel at the point it became Fiat.  Its a problem and the people who run our economy dont even see it or understand it or even worse they do.  They think debt is money, which its not. Its the promise of future work/money. Fiat is bullshit that gives people more fake power over others and our leaders have terminally abused our fiat. Not Good.

Debt is being used as a weapon also.

Great Read.

CJgipper's picture

It's pretend payment.


"You pretend to pay me, and I pretend to work."


That's the basic problem; we're now communist.


ciao's picture

This analysis jumps the sharks.   

There are contemporary lead in references that are more appropriate to making this case, those that can be combined with popular social narrative eminating from the elitesbuil.

One of the most useful references that we can access on the social-capitalist narrative is the separation between Henry Ford's vision for capitalism as enunciated by Garret Garrett:

One may compare this to Philip Roth's lament in American Pastoral (which styles itself as a commentary on the US's productivity decline).  Roth's view is essentially racist, exceptionalist, and the one representative of the anti-American colonialists that started from Henry Cabot Lodge.  Roth himself was playing useful idiot to a whole class of dimwits.

Roth's so-called honoured skilled tradesmen did not build inter-generational wealth - Ford's did.   Roth's capitalist got his Hampdons mansion and his place in society while all the while his black tradesmen were unable economically to lift their progeny & communities despite their acknowledged skills and application to their trades. 

Hence one capitalist group innovated and shared wealth through wage increases that built a consumer and education growth society, while the other were the rent seekers that eventually outsourced and offshored.   Roth's narrative blaming the 60's civil rights movement for all is a fraud and a cover up for the whole reign of shennanigans that combines Garrett's views of the FDR hijack (The People's Pottage - 1953) with the wider and more appropriate view of the degenerative Progressivist movement and all the lackey corporatist-imperialist lawyers that have had power in the socialist executive.   

After Nixon said "we're all Keynesian's now" the 'flations were the only game.  Nixon himself wasn't the architect of this - FDR's corporatist project was followed by Kennedy's pursuit of the unfunded liabilities get out of jail card for the 1960 crisis made it inevitable.

So it comes down to this - a lawyer will always look to the immediate get out of jail card.   Lawyers don't plan beyond their next meal and are gun for hire rent seekers.  The 20th century was the one of the lawyers of the lawyers that destroyed new world aspiration and whose cabals steadily eroded the economic base of an empire that they had colonised and stole in as rapacious a manner as was their view of the whole settler movement that had delivered the pre-conditions for American power.   Enterprise for them was only ever about the taking.      

From that base - smoke for collateral, printing, debt, asset price inflation, exporting dollar inflation via carry trades, foreign USD debt bail outs, were the purchasing power fraud accompaniments to the eighties offshoring that exported the labour that was holding back productivity gains desired by the brand owners.

Trump appears to well understand this game but he has chosen to play only the Roth line in his campaign

The truth is that the Chinese merely clipped the ticket of the American elite's project that chose to sell out their economy and empire rather than address their productivity issue.   The latent power in the Chinese economy, however, has been understood by all from the 19th century onwards.  They were going to rise anyway.  Nixon knew this, the US brandowners will even profess that they knew this - but the truth is that the US empire that chose the Progressivists chose to define (from Lodge onwards) as the white Anglo neo-Roman Empire -  was always destined to overreach and reach the point of crisis when failing to prevail at some insignifcant frontier location.  

The likenesses of the subsequent reactions of the empire's rent seeking elites millenia apart aby as much impired by panic as it they been to greed.  In the post Eisenhower space the corporatists themselves have been lazy too-smart-by-half sods that have just bounced along.  It is one thing being a dick heads like Root, Stimson, the Dulles brothers and all those other white-Anglo New York lawyers - but being a third rate dick head is enough to let one assume a place among the  class of infantile idiots that took their Henry Cabot Lodge, Teddy Roosevelt, and Randolph Hearst camp movement way too seriously. 

Defecation's picture

Productivity has been skyrocketing, we just don't reward everybody with it, just the top 5%, i.e. stockholders. America's problem is not because people aren't work hard enough, it doesn't matter how hard you work if they funnel all the fruits of that labor away from you. It's like continually pouring OJ into the sink drain and hoping it will eventually backup and you'll be rich in OJ.

CJgipper's picture

Marissa Mayer gets 55M to LEAVE yahoo.  To LEAVE!!!!


Last time I fired someone, I just took their keycard away and walked them out; said I'd mail them their stuff with their last paycheck (I'll get around to it someday).  But hey, I'm trying to keep the lights on because I can't issue bonds to buy back my own stock and cash out on a valuation billions of dollars higher than my actual business value.

snblitz's picture

What is the minimum wage in Mexico? China?

snblitz's picture

How is this for depressing:

email correspondence:

Me (one single line): "What is my SAP Employee ID #?"

HR: "This depends on what system you are trying to use. There are many different employee IDs. Please let us know which system (Concur, SAP, Workday).

I Write Code's picture

How many man-hours did it take to build an iPhone in 1965? 

How many man-hours does it take to build one in 2016?

Trick question - none at all, it's made in China, so zero (0) hours register in the US.  With voodoo economics like that, the numbers are pointless.

ciao's picture

This is the point I should have made in black and white.   Further if you can launder your inflation and still grow nominal purchasing power you can introduce a services economy that does little in the way of supporting or growing productivity in other sectors.  However, selling flim flam is a fragile proposition and much of it has been goverment mandated compliance oriented services or bankster services that are the ondoing of sustaining or growing productivity.

SmittyinLA's picture

A 400% green energy toll doesn't help


GeoffreyT's picture

That 'Lokey' fella (the 'ZH defector') is gone, so we can be certain that he is not responsible for the ongoing shitshower of economic retardery that has infected ZH - of which this piece represents another distinct lurch downwards.

GDP per capita (Y/N, where Y is GDP and N is population) is not, has never been, and should never be used as a proxy for labour productivity - at least, not by anybody who wants to be taken seriously as an economic analyst.

Doing a 10-yr MA of a bad measure does not make it a good measure. In fact it makes it even less theoreticalyl defensible, since it's effectively sum(GDP)/sum(Population) - which means that if you have a six-year period (say, a fucking World War) where half the men are overseas (and therefore not fucking local women and producing infants), output (and workforce) rises while population doesn't.

GDP per labour hour (Y/L, where L is total labour utilisation measured in hours) is a slightly less retarded measure (one that literally just scrapes the bottom of the permissible barrel), so let's investigate the wedges between N and L.

First gap: kids and retirees - people who are not in the labour force by dint of age.

Chuck out kids and retirees, and you wind up with (roughly) 'population aged 15-65'. Let's call that N[W] - working age population.

N[W] is STILL a shit measure as the denominator for a measure of labour productivity, because population varies much more slowly than employment (the only way for someone to exit working age population in a given year, is to die... and once that's done, they can't come back: contrast that with employment - a person might be sacked one month, and find a job two months later).

Second gap: the non-employed - those not in the labour force.

Let's chuck them out from our denominator measure, and see if we're further from needing a remedial class in economics.

N[W] now becomes N[L] - the Labour force (in persons).

That's still a bit shit, because not all labour is utilised in a given period - there's such a thing as unemployment.

So let's chuck them out as well - so we get N[E]: employment (persons).

Will N[E] do as our denominator? No fucking way, dummy.

Why not? Because hours worked can vary like a motherfucker: some positions are inherently part-time (and have variable hours) and some full-time employees work overtime from time to time.

So now we convert employment (in persons) to effective full-time equivalent employment by multiplying by average hours worked and dividing by 40 (or 35 if you're French)... which gives a decent measure of labour utilisation in common units across time.

Let's call L our effective full-time-equivalent labour utilisation.

So NOW can we calculate labour productivity as GDP/N[F]?

No, fucktard - because GDP leaves out intermediate production ('B2B' transactions, in modern parlance), but the producer is indifferent whether labour adds to final sales or to intermediate sales. (As an aside: GDP also values government expenditure at dollar value, which overstates government-sector productivity).

What is actually required is gross output, and that is usually proxied by the total of all sales (which in turn is equal to total value added, plus intermediate sales).

To put it in context: GDP for the US for 2015 was $18T, while GO was $31T. Furthermore, the gap between the two measures is not constant.

So... in order to properly measure labour productivity, you need input-output tables (which show intermediate sales and sales to final demand), and effective full-time labour equivalent.

And if you're a purist (as I am) you remove all sales to government (intermediate and final) and all government (and related) employment.

And once you do all that, you find that the entire 'fall' in labour productivity is significantly overstated by GDP/N.

The main contributor to the lower rate of growth of GDP per person since the 1970s, is the rapid growth in trade deficits - in other words, it's a statistical artifact. Using output and labour measures that properly reflect the economic phenomena you're trying to capture, removes the supposed 'paradox'.

the.ghost.of.22wmr's picture
the.ghost.of.22wmr (not verified) May 3, 2016 5:24 AM

The South was right!

BruntFCA's picture

Geoff you don't really believe something as complex as an economy can be summed up in a few variables? Your post is as dumb as the original; most of the stats used in the calculations are totally borked anyhow (garbage in garbage out). Even the fundamental unit of account (USD) in this case is debauched. Economics never was a real science, most of its practitioners are either apologists for Central Banking or experts "after the event" - no better than dream interpreters.

Stud Duck's picture

This critique of the last 40 years of productivity excludes the ag sector. In the 1970's 90 bushels of corn per acre was a great feat with the newly aquired knowledge of producing a petroleum based nitrogen rather than manure and the old organic ways. Now the the monsanto methods corn bushel yeilds are at 250 to 300 per acre.

The now resulting problem is that the petroleum based nitrogen fertilizer the soil has been reduced to a media to hold the plant up and twice as much fertilizer is needed to produce the same amounts. All the farmers are realizing this condundrum can;t go on  much longer and soon yeilds are going down even with the newer methods of "tricking" the plant to grow.

The ag sector increase in productivity has been thrown into the basket and basically ignored as a sector by its self much to the sagrine of the common man.

As Jim Roger's quoted in 2008 in the middle of the crash, "there are young men that have lost jobs brokering this garbage and making hefty sums of money that they could afford to lease a Maserati. Now, if they want to stay in NYC, they are going to have to learn how to drive a cab, My advise to them is to learn how to drive a tractor, because there is some young guy 30 years old farming, and if he plays his cards right in the next 20 years, he will be able to buy that Maserati instead of leasing it".

It has been my recommendation to all young people to get involved in food production and give up the dream of a degree and a job in an office tower. I advise that I have experienced that cubicle in that office tower and it is a hell that no free individual should endure, expecially the mental torture that it creates in an individual and the final realization that your worth as an individual is nothing to those that run the show. How can one not miss the fact that a GDP measurement of useless production output is even close to real measurement of productivity.

Laplacian2003's picture

Is it possible to accurately quantify productivity on corporate scale?   I haven't seen a good measure of this, but am asking ZH readers to see if any thoughts.   Let me pose my dilemma by way of example..... Two companies A and B, each have same number of employees, and each achieved comparable sales and revenue last year in the widget market   On paper, both of these companies would appear equally "productive".   Now what if I told you that company A hasn't developed a new type of widget in 20 years, has scrapped their R&D department,  and is bloated with middle management and bureaucracy and doesn't have anyone on payroll who even knows what a widget is.  Company B, in contrast, has many new widget designs in the works, an energetic enthusiastic workforce and people on the payroll who actually know how widgets work as well as how to get things done.     

Any sane person would realize that company B has greater productivity and a bright future, whereas A will likely be out of business in a few years.  But managers never look beyond the simplest of figures when assessing their company performance.   How do you accurately quantify this in simple enough terms that even an executive could understand (yes pretty colored graphs and bubble charts are allowed)?