THE PRODUCTIVITY SLOWDOWN
Given the importance of productivity to living standards, economists viewed with alarm the decline in U.S. productivity growth. This break in the trend •. which is called the productivity slowdown, can be seen in Figure 27-8. This graph shows the growth in labor productivity in the private business economy. (Growth in multi factor productivity-has peen somewhat lower hut shows similar trends.) Labor productivity growth began to slow in the early. 1970s. A careful look at the data indicates that labor productivity slowed ill virtually all sectors of the economy.
Among the areas with the higgest deterioration in productivity were mining. construction, and services. Similar patterns, with a slowdown’ of productivity growth in the aggregate and in most sectors after 1970, characterize all major industrial countries.
Product is particularly important because of its association with growth in standards. Table 27-4 shows the effect of the productivity decline on real wages. Some elementary arithmetic shows that if labor’s share of national income is constant, this implies that real wages wiIl grow at the rate of growth of labor productivity.” The slowdown in productivity in the last two decades is therefore largely responsible for the stagnation in living standards over that period. Those who entered the labor force after World War II experienced healthy growth in real wages, while the, average worker over the last three decades experienced very slow growth in living standards.