A New Productivity Paradox
The government's data says Americans are working fewer hours. But you're still staying at the office every night. What gives?
By Daniel Altman

(Business 2.0) – Alan Greenspan and his colleagues at the Fed are thrilled about the productivity revolution sweeping the American workplace. And justifiably so. According to government statistics, the productivity of American workers has grown more in the past three years than it did during any similar stretch since World War II, and has risen by an average of 3 percent annually since 1996. The numbers suggest the economy can grow more quickly without triggering inflation. Yet many workers complain that they're paying the price in longer, tougher workdays.

Oddly, however, the official statistics tell a different story. According to the Commerce Department's Bureau of Labor Statistics, the average hours worked in a week actually dropped by 1 percent from the end of 2001 to the end of 2003, even as the economy grew by 6.8 percent. You and everyone you know may be clocking long hours at the office, but the BLS says you're atypical. So what's going on?

The mathematical explanation is that productivity rose so rapidly, companies haven't needed to buy as many hours of their workers' time to meet demand for their products. That's consistent with one obvious trend: the more skillful use of information technology, which generates huge efficiencies throughout the economy. But there's another factor at work: In Uncle Sam's productivity figures, millions of bleary-eyed workers simply don't exist.

How did they disappear? The government doesn't explicitly measure individual productivity; instead, it surveys businesses to quantify changes in their output of goods and services, the size of their payrolls, and the average weekly hours of the people on those payrolls. Using those numbers, the BLS calculates the change in the average worker's output per hour. But the figures leave out some important details.

For one, the surveys canvass corporate employment only, not government work, even though government has been one of the main generators of new jobs since 9/11. And the data is based on "nonsupervisory" workers, so it omits managers. Part-time, temporary, self-employed, and off-the-books workers are also underrepresented.

As an experiment, let's see what would happen to productivity statistics if they were recalculated using a more realistic cross section of U.S. workers—say, from a monthly Census Bureau survey that counts everyone who claims to have a job. And what if we also plug in the data about total hours worked in all jobs from the same survey?

The result is the more modest productivity trend shown in the chart to the left. The untold productivity story is that there are actually more workers than the official figures suggest, and they're working a lot of hours—nudging the overall productivity growth number south.

Why should you care? For one, all this suggests that the long hours you've been working aren't so unusual after all. It also helps explain why your paycheck isn't growing. Productivity gains should lead to rising pay, but that hasn't happened. Last month I explained that health-benefit costs are partly responsible, but this revised productivity picture may be partly to blame as well. And here's another cause for alarm: If Greenspan has overestimated productivity growth, he may also underestimate the dangers posed by inflation and irrational market exuberance. That could lead to another bubble like the one that burst in 2000. Until the government starts using more comprehensive data, that risk isn't going away.