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2003 Annual Report—Federal Reserve Bank of Dallas

A Better Way
Productivity and Reorganization in the American Economy

Reaping Productivity's Payoff

No matter how much we focus on work and jobs, an economy's true test lies in how well it provides for the vast majority of consumers. Even the most spectacular advances in productivity would be hollow if they didn't translate into better living standards.

Cell phones can save time and money by keeping us in touch.

As they get richer, most societies move down a list of priorities. We first take care of the basics of food, clothing and shelter. We then move to furniture, transportation, health care, and a long list of other goods and services. At some point, most of us begin to prefer nonmaterial benefits, ranging from leisure time to a cleaner environment. The richer the society, the more likely it will take productivity gains as something other than more consumer goods.

As output per hour has increased steadily over the years, we've taken plenty of our added productivity as material gains—more cars, bigger and better-equipped houses, an abundance of goods and services. We consume more than any other nation, but we've sacrificed some potential consumption to take at least part of our productivity gains in other ways.

For example, we work less. Over the past few generations, the typical worker has gone from a six-day workweek with little vacation to an average of 34 hours plus three weeks off. Anecdotal reports suggest that Americans have begun working longer hours in recent years, but the trend doesn't show up in the systematic studies of how we use our time. Neither Department of Labor surveys of work hours nor University of Maryland time diaries find lengthening average workweeks.

Statistics measuring productivity capture added output and the shorter workweek. Still other ways of capitalizing on greater productivity don't show up in the numbers, largely because they aren't fully accounted for in gross domestic product. Unmeasured payoffs of productivity include better working conditions, new products and greater variety. All improve living standards, and all ultimately derive from increased productivity:[1]

Compared with what previous generations experienced, modern workplaces are safer, cleaner, quieter and less crowded. Employers, aware that happy workers are more productive, offer relaxed dress codes, flexible work schedules and other extras not included in GDP.
Today's Americans pack cell phones in their pockets, pull in television signals from outer space and shop the world over the Internet. Our daily lives are filled with new and better products, improving life by more than the GDP numbers indicate.
We're also enjoying a dazzling diversity of goods and services in the marketplace, an array of sizes, colors and flavors—yet the explosion of consumer choice barely shows up in GDP.

Commerce Department statistics show the U.S. economy has been doing very well in becoming more productive. In reality, it's even better. The numbers capture productivity's contribution to greater consumption and leisure, but they miss the gains we've achieved in other areas.

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