Productivity in the United States suffered its biggest drop on record in the second quarter, while businesses saw labor costs rise the fastest since 1982, contributing to the high inflation the country is experiencing. From April to June, productivity fell 2.5% compared to the same period last year, according to the preliminary estimate released Tuesday by the Bureau of Labor Statistics (BLS).
This is the largest one-year drop recorded since data began to be collected in 1948. Indeed, production has certainly increased by 1.5%, but much less than the number of hours worked which have risen by 4.1%. This decline in productivity, coupled with the rise in wages linked to the shortage of labour, has generated for companies the largest increase in the cost of labor in 40 years: +9.5%.
A revived economy slowly recovering from the Covid-19 crisis
The productivity “fell for the second quarter in a row as companies continued to hire at a healthy pace and production continued to decline», Details Lydia Boussour, economist for Oxford Economics. As for rising labor costs, she points out that “as businesses face a very tight labor market, they cannot rely on productivity gains to mitigate the impact of labor cost pressures», reducing their margins.
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The labor market showed unexpected dynamism in July and the country has now regained the 22 million jobs destroyed with the pandemic, while the unemployment rate has fallen to 3.5%, as in February 2020. The shortage of workforce pushes companies to offer higher salaries to attract candidates and retain employees. This helped push up prices, and inflation hit a new 40-year high in June, at 9.1% year-on-year. July data will be released on Wednesday.
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