STATE OF BUSINESS: A Key to Growth

Productivity is the economist's favorite —and often confusing—term to describe the amount of work a man does in an hour. What makes it misleading, and makes much exhortation on the subject so irrelevant, is the fact that the real increases in productivity often come not just from a man's working harder but from the use of laborsaving machinery and systems that help him to do his job better and faster. Such devices usually require fewer men, but often better skilled ones. Productivity thus is one of the key methods of gauging the economy's ability to grow—and a major issue in the argument over how great the U.S. rate of growth should be. Last week the Labor Department announced that productivity rose substantially in a number of industries in 1959. But it also raised the serious question of how much productivity will grow in 1960.

Output per man-hour in all private industry last year increased by more than 4%, surpassing the average of just over 3% a year for the 1947-59 period. In the steel industry, productivity rose 12%, in hard-coal mining 10.2%, in railroads 6%. Although non-farm industries advanced more than average, agriculture showed virtually no gain, indicating that the mechanization that increased productivity about 6% a year from 1947 through 1958 is largely completed.

The coal, steel and railroad gains were spurred by the economy's recovery from the 1958 recession, reflected the use of a smaller labor force and the benefits of new machinery installed just prior to the recession. In all, Government economists agree that for the private economy as a whole, 1959 was a better year than average. It would have been even better if the recovery from the recession had not been marred by the steel strike.

In recent years, increased productivity has been accompanied by regular wage hikes (see chart). Such unions as Walter Reuther's United Auto Workers and James B. Carey's International Union of Electrical Workers now argue that earnings should rise at the same rate as productivity. But productivity jumps, insists management, not only reflect increased output per worker but increased capital investment and automation. Productivity also has an effect on prices and inflation. An increase in output per man-hour not only makes more goods available; it makes possible either lower prices or higher profits—or some of both.

Specialists now feel that while productivity will continue to increase so long as technological advances are made, 1960 will bring no exceptional rises. Such industries as utilities and agriculture have already made strong advances in productivity. Future advances should come in construction and in the service trades.