In one of his Bloomberg columns, the investment manager and columnist Barry Ritholtz mentioned a curious fact that had been noted a recent report released by the Bureau of Labor Statistics.
This fact might strike some as surprising: workers in the U.S. business sector worked virtually the same number of hours in 2013 as they had in 1998—approximately 194 billion labor hours.1 What this means is that there was ultimately no growth at all in the number of hours worked over this 15-year period, despite the fact that the U.S population gained over 40 million people during that time, and despite the fact that there were thousands of new businesses established during that time.
That seemed pretty amazing. After all, that period included the bursting of the internet bubble, the inflation of a housing bubble and the bursting of that housing bubble. The GDP was much larger at the end of this period than in 1998, though it had lost ground during the recession. Simple arithmetic suggested that productivity must have been rising. I had to know what was going on. That meant a quick trip to FRED, the statistics web site maintained by the St. Louis Federal Reserve. I threw together a simple chart of real GDP divided by hours worked. Let’s call this apparent productivity. I was rather surprised at the result:
Some of the chart was as I had expected. There was the productivity slump of the 1970s and slow downs during various recessions. I was surprised to see a steep rise in productivity running from 1995 to about 2005. Wasn’t that when we could see computers everywhere except in our productivity statistics? There was another steep rise from 2008 to 2010. Was that the stimulus in action? I rather doubt it. It wasn’t much of a stimulus. Then came the flat line with little or no apparent productivity growth to the current day.
Just so you can get a feel for how this chart was constructed, here is a chart showing its two main components:
You can see the stagnation in hours worked on the blue line and the effect of the housing bubble bursting on the red line. All those other recessions were just babies compared to our most recent one. We haven’t been hit with anything like that since the 1930s. The stagnation in hours, however, started during a boom, survived a recession, and has continued during the recovery. It would be odd if these two anomalies were unrelated.
Curious, I decided to see how different my chart was from a labor productivity chart produced using real economic data. FRED to the rescue. I couldn’t get the two lines to a similar scale, but some of the differences are obvious Their chart was much flatter in the 1970s, but it has productivity rising even now, though slowly. Presumably this has to do with capital investment, the productivity of that capital and that mysterious entity, total factor productivity, which is whatever is left after labor and capital have been removed.
Most likely dividing the real GDP by the number of hours worked is the economics equivalent of dividing by zero. Luckily, the FRED website doesn’t seem to have a problem with that. Still something strange is going on, at least the BLS seems to think so, and I’m agreeing with them.