Showing posts with label state economic growth. Show all posts
Showing posts with label state economic growth. Show all posts

Monday, March 9, 2020

Georgia falling short in productivity

Georgia’s private nonfarm sector’s productivity rose an average of 0.9% over 10 years, much lower than the nation’s increase of 1.3% for the same period. 

The increase at the state level reflected an average increase of 1.48% in output and an increase of 0.57% in hours worked.

States’ average annual productivity growth ranged from 3.1% in North Dakota to −0.7% in Louisiana.

New data from BLS

For the first time, the Bureau of Labor Statistics has released an experimental measurement of state-level productivity for the private, nonfarm sector. While BLS has published national levels of labor productivity for decades, information at the state level has been lacking, and to its credit, the federal agency is attempting to meet that need.

As they explain, “by analyzing state-level productivity trends over the long term, data users may learn more about regional business cycles; the persistence of regional income inequality; which states are driving productivity growth at the national level; and the role of regulations and taxes on growth.”

Although the agency is able to publish yearly data at the state level, because of the limitations of the information available and until more reliable data are available, a good place to begin looking at productivity numbers is over the length of a business cycle, so BLS has provided a 10-year average by state, from 2007 to 2017.

California and Georgia

As a comparison, while Georgia’s 0.9% average productivity rate fell below the national average, California’s long-run average rate at 1.7% was significantly above the nation.

From 2007 to 2017, average yearly output per worker increased by 1.62% compared to Georgia’s output per worker increase of 0.68%.

Unit labor costs increased 0.99% per year in California, while it rose 1.6% in Georgia.

The value of production in California rose an average of 3.85% per year compared to a 3.3% increase in Georgia.

For Georgia to more effectively compete with states like California in a technology-driven future, the state will have to find ways to increase its productivity numbers.

Why it matters

Productivity is key to economic growth. Higher productivity leads to higher wages and higher standards of living for workers. When workers are able to produce more output per hour worked, the entire economy benefits resulting in a higher standard of living.

Labor productivity benefits from increases in technology and new work processes. New technology and processes allow workers to produce more output per hour of labor, and so raises their output per hour.
Labor productivity also benefits from producing goods of higher value. If the output can be sold at a higher price because of value added during the processing, that makes it more valuable for each hour of labor needed for its input.

Imagine cutting a log. You can sell that log for one price, but if you turn that log into higher value wood furniture, it adds value and can sell for a higher price.

As companies in the state are able to increase the value of their output, the state’s productivity rate benefits.

To the extent that Georgia lags other states in its productivity numbers, it is a drag on the nation’s productivity measure and makes it harder to raise the state’s standard of living for workers.