Deregulation is boosting productivity, which boosts wages

Recent data releases have put to bed, for now, the narrative that the U.S. economy is on the precipice of recession. They also affirm that the current economic expansion will go down in the history books as the longest period of growth the U.S. economy has ever experienced.

I remain a bit skeptical of data whose collection was interrupted by the partial federal government shutdown, but taken at face value the news has been good.

One recent bit of good news was the data on productivity of nonfarm workers released by the Bureau of Labor Statistics. The release showed that in the first quarter of 2019 labor productivity, or output per hour worked, increased by 3.6 percent at an annual rate.

This was the second-largest quarterly increase in the recovery to date, if you exclude the first few quarters immediately following the end of the recession as productivity typically surges as the economy exits a recession.

The year-over-year gains in productivity were strong as well, coming in at 2.4 percent — the largest gain since the third quarter of 2010.

Productivity is an essential component of economic growth and for wage and salary growth, which for much of this recovery has been tepid.

Since the mid-2000s, productivity has been in a bit of a slump in the U.S., and this has been both a source of concern and a puzzle for economists (a similar puzzle emerged in the 1970s.)

Various explanations have been proffered to explain the slump in productivity, including measurement error in our macroeconomic data or demographic factors.

The demographic explanation hinges on the share of younger workers in the economy who have less human capital and are therefore less productive than their older counterparts.

There is another factor, one that gets far less scrutiny that can help explain both these productivity puzzles and perhaps the recent surge in productivity: regulation.

Clicke here to read more of this Hill article by Sean Snaith by clicking here.

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