Wednesday, January 25, 2012

Productivity growth

The Economist reported in December that productivity has unexpectedly been growing robustly in the US. This is despite the fact that last year many experts were predicting slow productivity growth. Some of the people interviewed said they saw no limit to its continued climb.

The gains have been, theoretically, driven to a large extent by necessity. In the current economic environment, competition is tough, and firms are looking for any edge they can get. Workers are also eager to be productive to keep their jobs.

This last factor stems in part from the fact that the US's labor market is much more flexible than those of many other countries. Companies have more freedom to hire and fire at will. One of the things that has been holding Europe back for years is inflexible labor markets.

Productivity growth is a big driver of economic growth and an important factor in international competitiveness. US productivity growth in the past year has been faster than most other developed countries.