- The Washington Times - Thursday, October 24, 2002

American productivity should continue to post solid gains in coming years, although not at the level of this year's surge, which is likely to be one of the strongest increases in three decades, Federal Reserve Chairman Alan Greenspan said yesterday.
Mr. Greenspan, who has been one of the leading proponents of the view that the country has entered a new era of stronger productivity growth, told a conference that the productivity boom of the late 1990s has not faltered.
Instead, it actually has grown stronger over the past year, he said, even in the face of significant economic problems, including a recession and sluggish recovery.
Mr. Greenspan said the increase in productivity the amount of output per hour of work for this year "will almost surely be reported as one of the largest advances, if not the largest, posted over the past 30 years."
He said economists at the Fed and other government agencies, as well as private forecasters, were "struggling to account for so large a surge."
Through the 12 months ending in June, productivity for nonfarm workers has risen by a sizable 4.8 percent, the biggest jump for a 12-month period since 1983. The gain is well above the improved rates of around 2.5 percent turned in since 1995 and far above the anemic productivity rates of around 1.5 percent, which the country was saddled with for two decades before 1995.
Economists closely watch changes in productivity growth because it is the key factor in determining how fast living standards can rise. If workers are able to produce more per hour of work, then their employers can afford to pay them more without having to increase product prices, something that causes inflation to rise.
Mr. Greenspan cited many of the factors he has in the past for the increase in productivity since 1995. He said the growing use of computers and other high-tech equipment was supporting the gain in productivity, much like the introduction of electricity and automobiles raised productivity in the early part of the last century.
Mr. Greenspan said while it is unlikely that productivity will surge at this year's rate for very long, the country can still expect more of the strong productivity growth going forward. He took issue with forecasters who contend the current "productivity feast" will be followed by a "productivity famine."
The Fed chairman cited studies presented at the conference, sponsored jointly by the Labor Department and the American Enterprise Institute, which forecast that a significant portion of the productivity rebound in evidence since 1995 is sustainable.
One such study predicted that productivity gains over the next decade could average between 2 percent and 2.75 percent a year, and another forecast increases of around 2.25 percent.
"These estimates are clearly plausible," Mr. Greenspan said, although he cautioned that in the past productivity increases triggered by technological advances did eventually run their course.
"Gains in productivity remained quite rapid for years after the innovations that followed the surge of inventions a century ago," Mr. Greenspan said, citing the boom after electricity, the telephone and automobiles were introduced early in the 20th century.
But he said, "In other episodes, the period of elevated growth of productivity was shorter."

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