Despite the huge increase in productivity, unit labor costs increase even more

Labor costs soared in the fourth quarter of 2021, dwarfing even surprisingly strong productivity gains and suggesting that inflation’s grip on the economy tightened at the end of the year. last year.

Unit labor costs, which measure the compensation U.S. businesses pay to produce a given level of output, rose at an annual rate of three-tenths of a percentage point from October to December, data from the Bureau of Labor Statistics shown Thursday. This reflects a 6.9% increase in hourly compensation and a 6.6% increase in productivity.

The productivity gain came as output jumped an impressive 9.2% in the fourth quarter while hours worked rose 2.4%, indicating workers were producing more per hour. Average annual productivity increased by 1.9% between 2020 and 2021.

Productivity slumped in the third quarter, although the previous report of a 5.9% decline was revised down to just 5%. Unit labor costs jumped 9.3% in the third quarter, revised down from 9.6% in the previous estimate.

Economists had forecast a lower increase in productivity and a larger increase in unit labor costs. The better-than-expected numbers suggest businesses are becoming more efficient as they adjust to an economy repeatedly shaken by Covid-19.

The BLS calculates labor productivity by dividing an index of real output by an index of hours worked by all people, including employees, owners, and unpaid family workers.

In the fourth quarter of 2021, output and hours worked increased for the sixth consecutive quarter after historic declines when the pandemic first hit and containment measures were put in place. The production index for the fourth quarter of 2021 is 4.1% higher than the level observed in the fourth quarter of 2019, the last quarter not being affected by the
COVID-19 pandemic, as the hours worked index remains 0.4% lower than its level in the fourth quarter of 2019, indicating that workers are producing more despite working fewer hours.


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