Productivity: The U.S. Remains Leader Of The Pack...

Don't sell the U.S. economy short. It may have suffered through a painful recession, but its current growth prospects seem far brighter than those of its industrial rivals overseas. More important, in the critical area of productivity--whether one looks at manufacturing or services--it still maintains a commanding lead. That's the assessment of William J. Baumol and Edward N. Wolff of New York University's C.V. Starr Center for Applied Economics.

In the factory sector, for example, the two economists note that, while a number of countries such as Germany and Japan were rapidly gaining on the U.S. in the earlier postwar period, the latest data indicate that Germany's growth rate has been lower than America's for some 15 years. And Japan's once far-higher manufacturing-productivity growth rate is now only slightly faster than the U.S. pace, which has recently picked up considerable steam.

Meanwhile, the focus is shifting to service-sector productivity. Over 70% of U.S. jobs are now in services, the largest share of any nation. But as the chart shows, service jobs in recent decades have been growing even faster overseas. "Rapid growth in manufacturing productivity," notes Baumol, "is reducing the share of the labor force needed to meet the demand for manufactured goods and driving workers all over the industrial world to the services."

Fortunately, the U.S. appears to be even further ahead of the pack in service-sector productivity. Although measured growth in U.S. services productivity has been sluggish since the early 1970s, it still seems to have been considerably faster than in other nations. In fact, a recent McKinsey & Co. analysis of productivity in five service industries in the U.S., Germany, Japan, France, and Britain concluded that the U.S. levels are generally substantially higher.

That, of course, doesn't mean the U.S. can afford to sit on its hands. The global shift to services, observes Baumol, is predominantly to the burgeoning information industries, and other nations want in on the action. "Technological advances in services can move across oceans as rapidly as they have in manufacturing," he warns.

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