For the first time since the 1960s, U.S. productivity hasbeen growing at an annual rate above 2.5 percent. Asnumbers go, this may not seem spectacular, but it hasenabled the economy to sustain a very low level of un-

employment—less than 5 percent in each of the past threeyears—while holding retail price inflation to about 2 percent ayear. The late stages of most business cycles put irresistible pres-sure on employers to raise wages, which ordinarily leads to in-creased prices and in turn acts to slow or stop the expansion.But in the present circumstances, employers can raise wageswithout upping prices because of increased productivity.

According to the President’s Council of Economic Advisers,about half of the increase in productivity since 1995 is ex-plained by increased capital equipment—particularly comput-ers and software—plus increased productivity in the computer-manufacturing industry. The remaining half of the productivityincrease may reflect new efficiencies from Internet use by busi-ness and the normally greater efficiency of employees duringperiods of high demand.

The better educated benefited the most from the rise in pro-ductivity. Average hourly earnings in private, nonagriculturalbusiness increased in real terms by about 16 percent during the

past 40 years, but professionals did better: physicians, for exam-ple, enjoyed an increase in real earnings of 33 percent in thesame period. One way of looking at the benefits of rising pro-ductivity is to compare various family income groups. The top5 percent of families had an increase in income of 129 percentin real terms from 1960 to 1998, while the middle fifth had anincrease of 54 percent and the bottom fifth only 38 percent.Family income went up not only because productivity wasgreater for other reasons, such as the increasing number ofwives taking jobs outside the home. The average real income ofworking Americans, as the chart shows, increased beginning in1995—undoubtedly made possible by the spurt in productivityover the same period.

In 1950 northwestern Europe, as measured by gross domesticproduct (GDP) per hour worked, was half as efficient as the U.S.,but now it is about 90 percent as efficient, and a few countries, in-cluding France, were marginally ahead as of 1997. The U.S., how-ever, is far ahead of France—and every other country—in termsof GDP per capita, in part because Americans put in longerhours and because proportionately more are economically ac-tive. In France and Germany, for example, only 48 percent ofthe civilian working-age population actually worked in 1997, ascompared with 64 percent in the U.S. Lower labor-force participa-tion and high unemployment rates, as exist in much of Europe,suggest that the least skilled are excluded and so do not dragdown productivity. By comparison, the U.S. economy has createdmillions of jobs for less skilled and presumably less productiveworkers. Few, however, would disparage low unemployment forthis or any other reason. —Rodger Doyle (rdoyle2@aol.com)

By the Numbers34 Scientific American May 2000

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tors and hospitals. Some new studies sug-gest that cost-cutting measures, such as re-ductions in hospital staffs, can increasethe potential for error. “Doctors need timeto make a diagnosis,” says Kenneth M.Ludmerer of the Washington UniversitySchool of Medicine. “A physician can missall sorts of things if he has to treat a pa-tient in just a few minutes.”

Perhaps the best strategy for combating

medical errors is to follow the example ofthe U.S. Veterans Health Administration,which is widely praised for the safety ef-forts at its 173 hospitals. When a seriouserror is reported at a V.A. hospital, a pan-el of staff members investigates the eventand recommends changes. Some solu-tions are high-tech: to prevent patientsfrom getting the wrong drugs, the V.A. isequipping its nurses with handheld scan-

ners that can match the bar codes on drugvials with those on patient-identificationbracelets. The head of the V.A.’s safety pro-gram is James P. Bagian, a former spaceshuttle astronaut who served on the teamthat investigated the Challenger explosion.Says Bagian: “Just telling doctors and nurs-es to be more careful won’t do very much.We need to change the systems that al-low errors to happen.” —Mark Alpert

ProductivityE C O N O M I C S _ L A B O R

Less than U.S. U.S. More than U.S.

Gross Domestic Product per Hour Worked in 1997 (Index: U.S. =100)

No data

30

47100

8190

107101

63

68

70

77

7878

78

80

58

83

9085103

105

88

SOURCES: CHART: U.S. Bureau of Labor Statistics. Average hourly earnings are deflated by the con-sumer price index to compute real hourly earnings. Adjustment by another widely used index, theGDP deflator,would have resulted in a trend line somewhat closer to that of nonfarm output per hour.

MAP: “International Comparisons of Labor Productivity and Per Capita Income.” Bart van Ark andRobert H. McGuckin in Monthly Labor Review, 1999, pages 34–41; July 1999. Available data areshown for all members of the Organization for Economic Cooperation and Development.

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Copyright 2000 Scientific American, Inc.