2.1.2.3Productivity Trends Since 1977

Figure 2.3 shows the average annual growth rates of labor productivity for different periods between 1960 and 1998. In the United States, productivity increased at a very high rate during the period between the end of the Second World War and the middle of the 1960s. From 1960 to 1973, the average annual growth rate of labor productivity was around 3%. Since 1973, then, there has been a productivity slowdown. Between 1973 and 1985, this growth rate was around 1.3%. It was around 1.5% on average between 1986 and 1995. Finally, between 1995 and 1998, average labor productivity growth increased to 2.3%. Thus, since 1995 a productivity recovery has appeared. As a matter of fact, productivity growth today has reached its 1960s level of more than 2.5% annually, compared to a mere 1% during the 1980s.

The slowdown in productivity can also be seen in Figure 2.4, which reports the trend in labor and multifactor productivity over the last thirty years. The two doted lines represent the hypothetical trends that these indexes would have followed if they had evolved steadily as they did between 1960 and 1966. The areas between these doted lines and the actual respective trends are visual representations of the productivity slowdown, which seems more important for multifactor productivity.

This section has shown that productivity is seen as a major concept in economics because it relates how much was produced with a given quantity of inputs. It is often used as an indicator of the wealth of a nation. Since the late 1960s there has been a significant productivity slowdown, which seems to have been even more dramatic for multifactor productivity compared to labor productivity. These facts will help identify the problem tackled in this study. This is the object of the next section.