Wednesday, December 13, 2017

Labor Productivity since 1988


I like this graph of labor productivity. The red and blue data lines look like trend lines for the jiggy green:

Graph #1: Labor Productivity
See how productivity has been really low most of the time since 2010? You know about that.

It was very low like that for two or three years before 1995. Then all of a sudden it went high and the economy was good for a while. Yeah, I expect that to happen again soon and I think we're getting there now.

What else do you see on the graph? Productivity always goes high after a recession. After the 1991 recession on this graph, and after the 2001 recession, and even after the Great Recession. A good big fat spike after the Great Recession. And then nothing.

Any minute now it will go up, like in the mid-90s. If you run that red line out to the end of the graph, it's going up.

Any minute now ...

6 comments:

Philip said...

Your graph of percent change from year ago of non-farm business sector: real output of all persons falls sharply at the start of the recession, rises during the recession itself, falls again during the recession and rises again during the recession itself.

This is quite different from https://fred.stlouisfed.org/graph/?g=gFch which shows Percent change from years ago of Non-farm business sector: real output of all persons (Index 2009=100). This falls sharply at the start of the recession and then rises again sharply.

I had always thought this was no more than a statistical illusion. Consider a firm producing 100 widgets per unit time and employing 100 workers. The labour productivity is 1 widget per person per unit time. When a recession starts, sales fall, so the firm cuts production to 90 widgets. But since it is not sure whether the fall in sales is a temporary blip or not it continues to employ 100 workers. So calculated productivity is 0.9 widget per worker per unit time and the fall in productivity is 10%. However, when the slump in sales persists it dismisses 10 workers. So productivity rises to 1 widget per worker, and the rise in productivity is 11.1%, since the change is calculated on a smaller base.

In reality, productivity never changed. And indeed it should not since over the short term the company continues to employ the same machinery as before. It is just that in the interim period 10 workers contribute nothing to production.

The Arthurian said...

Oh, I like that analysis, Philip. That's useful.

"When a recession starts, sales fall, so the firm cuts production to 90 widgets. But since it is not sure whether the fall in sales is a temporary blip or not it continues to employ 100 workers."

Yes, I too think it works that way. I did a graph one time (years before the blog) that convinced me the layoffs lag the slowdown. I wish I could remember how I created that graph.

Your analysis explains my observation that "Productivity goes high after a recession -- after every recession".
http://newarthurianeconomics.blogspot.com/2016/09/productivity-without-recession-effects.html

"It is just that in the interim period 10 workers contribute nothing to production."

Yeah -- During the slow season, things get painted & building maintenance gets done. I've seen it.

Philip said...

Thanks.

Philip said...

I think the graphed line which falls and rises twice during the 2007-09 recession is incorrect

The footnote to https://fred.stlouisfed.org/series/PRS85006092 states: Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked of all persons, including employees, proprietors, and unpaid family workers.

The error probably lies in dividing one index by another.

This is why it is completely different from https://fred.stlouisfed.org/series/OPHNFB (edited for percent change from a year ago) and https://fred.stlouisfed.org/series/PRS85006091. These graphs fall and rise only once during the recession.

The Arthurian said...


"The error probably lies in dividing one index by another."

I don't like it, either, dividing an index by an index. In my post scheduled for the 17th I gripe.

But I'm not sure about error. I think adding or subtracting indexed series might generate errors. I think multiplying or dividing would be okay. Not sure.

Like PRS85006092, PRS85006091 divides one index by another. And the latter falls and rises only once during the recession, as you say. Dividing index by index didn't create the problem for PRS85006091.

The discrepancies you're finding look to me to be due to different units. On my Graph #1 above, the green line (PRS85006092) uses "Percent Change at Annual Rate". But it is still quarterly data. If you change the "Modify frequency" drop-down from "quarterly" to "annual" you get Percent Change at Annual Rate for annual data. When I do that, I get one peak that begins low in 2008, hits a high in 2009, and hits bottom again in 2011.

https://fred.stlouisfed.org/graph/?g=gIk3

On gIk3 the blue line is PRS85006092 (units = percent change at annual rate) with the frequency changed from quarterly to annual.

The red line is OPHNFB (quarterly data) with the units changed to "percent change from year ago", as you showed.

The black line is PRS85006091 (quarterly data) with the default setting "percent change from quarter one year ago".

Red and black are identical. Blue is a little less jiggy because the frequency is annual, but blue follows a smoother version of the same path followed by red and black.

Philip said...

Let me see what Fred says. I have written to them.