Sources of labor productivity growth shift

Labor productivity growth for the private business sector has averaged about 1.3 percent per year since 1973: 1.3 percent from 1973 to 1979, 1.2 percent from 1979 to 1990, and 1.3 percent again from 1990 to 1997. Although the average annual rates of growth in output per hour of labor input were about the same during these periods, the reasons for that growth have differed.

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During the period 1973 to 1979, multifactor productivity growth—output per hour of combined labor and capital inputs—and increased capital intensity accounted for virtually all increase in output per hour. Shifts in labor composition—the educational attainment and work experience of the labor force—made no contribution.

From 1979 to 1990, multifactor productivity growth slowed, but the contribution of labor composition by education and experience increased enough to essentially offset this decline. The contribution of capital intensity was not much changed.

The sources of labor productivity shifted again after 1990. The contribution of capital intensity slowed, while multifactor productivity growth edged back up. The contribution of labor composition accelerated as the baby boom generation completed its entrance into prime working age.

These data are a product of the Multifactor Productivity program. Additional information is available from news release USDL 99-36, "Multifactor Productivity Trends, 1997." Note that the sum of the contributions of multifactor productivity, capital intensity, and labor composition may not equal total labor productivity growth due to independent rounding.