Productivity Gains Give Wages a Boost
Strong economic growth last year gave a healthy boost to labor productivity, allowing firms to give their workers solid pay increases while raising the prices of what they produced only slightly, the Labor Department reported yesterday.</br></br>Gains in productivity -- the amount of goods and services produced for each hour worked -- are a key ingredient in raising the nation's living standards. Consider this arithmetic:</br></br>Last year businesses other than farms increased their workers' compensation 4.2 percent while raising the prices they charged only 0.7 percent. The companies could do that without clobbering their profits because productivity gains offset 2.2 percentage points of that difference. And other cost-saving actions reduced non-labor costs by 1.4 percent on each unit of output.</br></br>The overall result was a combination that's hard to beat. The firms eked out a small increase in profit on each unit sold, workers' real pay went up 2.6 percent faster than consumer prices, and inflation went down. (The Labor Department uses the consumer price index, which rose 1.6 percent last year, to adjust compensation for inflation.)</br></br>However, many analysts and policymakers are questioning whether such good news is likely to continue for long.