“It turns out that the middle period, 1920-1970, was the golden age for the growth in the American standard of living. Though the number of hours worked fell (reflecting the transition to a workweek of 40 and then 35 hours) and therefore, as noted, output per capita had to rise more slowly than gains in productivity, those gains were nevertheless so impressive that they greatly buoyed the improvement in the living standard.”—Sanford Rose
Dolors & Sense
By Sanford Rose
KISSIMMEE Florida—(Weekly Hubris)—3/7/2016—We measure our welfare, however erroneously, by the output of goods and services per person. That magnitude is a function of the number of hours worked and the productivity of those hours.
Now to the first derivative: If the number of hours worked falls, output per person will rise more slowly than the rate of productivity advance. If the number rises, so-called welfare will go up faster than improvements in efficiency.
In a magisterial work, The Rise and Fall of American Growth: The US Standard of Living Since the Civil War, Bob Gordon of Northwestern University traces, with fresh calculations, the history of hours worked and changes in efficiency since 1870. He divides this period into three sub-periods: 1870-1920, 1920-1970, and 1970-2014.
It turns out that the middle period, 1920-1970, was the golden age for the growth in the American standard of living. Though the number of hours worked fell (reflecting the transition to a workweek of 40 and then 35 hours) and therefore, as noted, output per capita had to rise more slowly than gains in productivity, those gains were nevertheless so impressive that they greatly buoyed the improvement in the living standard.
During this period, productivity increased at an annual pace of 2.8 percent, lifting output per capita by 2.4 percent per year. We did not witness those gains previously, nor have we seen their like since.
In the 1970-2014 period, productivity rose by only 1.6 percent per year. Since the number of hours per year also increased (reflecting the entry of women into the labor force), the annual gain in welfare summed to about 1.8 percent, still about a 25 percent slowing in the improvement in the living standard achieved in the previous half century.
Professor Gordon takes us on a decennial journey of productivity changes. The picture resembles a ladder. Productivity grew at less than one percent a year in the ten years ending in 1920; at slightly over 1 percent in the decade ending in 1930; at well over 1.5 percent in the period ending in 1940; and at nearly 3.5 percent in the 1940s.
Then the glissade took over—only about a 1.5 percent gain in the 1950s; less than that during the 1960s; still less during the 1970s. There was a brief bump up during the 1980s, but the trend downward continued into the 1990s and 2000s.
There is nothing remarkable about the surge during the 1940s. The first half was wartime, when our heroes were men like Henry J. Kaiser, who turned out Liberty ships at such a frenetic pace that the Nazis could not hope to sink enough of them had they twice as many submarines as they actually possessed.
But there appears to be an anomaly. Why did productivity increase so rapidly in the 1930s? Wasn’t the Great Depression a period of low corporate investment?
Actually, it wasn’t. Investment in structures was sluggish, but that in equipment was not. American business invested in machinery at a quite buoyant clip during most of this period.
For those of us enamored of fanciful flights of concatenation, the following Gordonian effort is stimulating: If not for the Great Depression, there would not have been a New Deal. If not for the New Deal, there would not have been legislation that enabled unionization. If not for unionization, wages would not have risen as strongly as they did. If not for the rise in wages, companies would not have splurged on labor-saving, efficiency-increasing equipment. If not for the improvements in efficiency in the 1930s, the USA would have found it far more difficult than was actually the case to meet the production demands of World War Two.
So don’t knock the Great Depression. It was Dickensian: the worst of times, the best of times.