J Brauer | © Stone Garden Economics
There has been some wonderment in the news media regarding the weak labor productivity growth in the United States in 2011, following the strong labor productivity growth of 2010, the year after the recession of 2008/9 was over. Indeed, in 2010, output per hour worked in the nonfarm sector grew by 4.1 percent. But this is par for the course: In other immediate post-recession years, nonfarm productivity likewise grew strongly. The record for the past 50 years is as follows: 3.0 percent productivity growth in 1961; 4.3 in 1971; 3.5 in 1975; 1.4 in 1981; 4.3 in 1983; 4.2 in 1992; and 4.6 in 2002. The strong productivity rebound in 2010 was only to be expected.
The underlying reason for this pattern is always the same: In the immediate post-recession year, the overall number of hours worked keeps falling, while the remaining employees are worked harder per hour to more than compensate for the laid-off workers. Thus, nonfarm hours worked fell in 1961 by 1.0 percent; 0.3 in 1971; 0.2 in 1992; 2.6 in 2002; and a mild 0.1 in 2010. The exception to this rule lies with double-dip recessions (1974/5; 1982-4; and 2008/9) when labor hours worked fell very hard during the recession years and then were near zero or slightly positive in the immediate post-recession year.
Another common pattern is that as workers are added to the payroll in the second post-recession year, productivity growth falls again. This, too, makes sense: During recessions, employers hold on to their high-productivity workers and lay off other, less productive workers first, and then rehire them when economic prospects are bright again. And, indeed, in the U.S. strong labor productivity growth in 2010 was followed by poor productivity grew of only 0.7 percent in 2011—hence the wonderment in the news media.
Things are very different in the agricultural (or farm) sector of the economy. Agricultural employment has been falling for very many decades of course, yet agricultural output has risen enormously. In fact, over the past 60 years productivity growth in the farm sector is over 70 percent higher than in the nonfarm sector. As the chart shows, by 2009 agricultural labor input had shrunk to little more than one-fifth of its 1948 level, yet output almost tripled (an increase of 270 percent). As I have argued in these columns before, it is incorrect to think of U.S. agriculture as non-industrial. The family farm is long dead—the shedding of agricultural workers more a phenomenon of self-employed farmers leaving or retiring than of hired farm help being fired—and modern agriculture very much has become an industrial enterprise. Numbers from the Economic Research Service of the U.S. Department of Agriculture show that the declining number of agricultural workers has been compensated for by corresponding increases in capital (especially equipment, buildings, and inventories) and materials (particularly of agricultural chemical).
Despite its good fortunes, agriculture is, however, far more affected by wild swings in labor productivity growth. Whereas nonfarm business labor productivity growth has fluctuated from about -1.5 to +5 percent per year, agricultural labor productivity growth ranges from -15 to +15 percent per year.
J Brauer is Professor of Economics, James M. Hull College of Business, Augusta State University, Augusta, Georgia, USA.