Skip to content
Subscriber Only
Business
Economics

Companies Choose Profits Over Productivity

Companies aren’t spending enough on the equipment workers need
Companies Choose Profits Over Productivity
Photo illustration by 731; Photos: Alamy(4); Getty Images(1)

When the U.S. economy emerged from the recession in June 2009, productivity was rising at a fast clip. Companies had spent the downturn cutting jobs and were lean and efficient. Productivity—output per hour worked—jumped 5.5 percent in the fourth quarter from a year earlier as workers did more with less. But as the recovery has chugged on, productivity growth has stalled, averaging less than 1 percent a year since 2011. Workers were actually less efficient in the first quarter of 2014, producing fewer goods and services per hour than they had during the previous quarter.

Although there are many reasons for the productivity rut, one of the primary ones is that businesses aren’t investing in their workers. Business investment fell almost 25 percent during the recession and hasn’t come back the way many economists had expected, especially given that low interest rates make borrowing less expensive. Growth of capital spending during this recovery is about 30 percent below the average of the prior five recoveries, according to Bank of America Merrill Lynch. That’s left many workers without the equipment, software, and structures—which economists call “capital”—that they need to be more productive. Whether it’s a computer or a forklift, workers are stuck using outdated machines. The average age of equipment in the U.S. is 7.4 years, the highest in 20 years, according to the Bureau of Economic Analysis.