Labour efficiency in the United States has been declining for the second quarter in a row against the backdrop of continuing high inflation (8.5% in July YoY) and American GDP growth rate contraction. Thus, according to the results of the second quarter of this year, labour efficiency in the country decreased by 4.6% after a collapse of 7.4 p.p. in the first three months of 2022. Annualized labour efficiency fell by 2.5%, which is the largest decline in the last 74 years.
Compared to the first quarter of this year, labour costs increased by 10.8% in the second quarter. The increase in labour costs in the American economy indicates that the US corporate sector will have to put up with lower margins or shift the growing labour costs to end consumers which may give a new impetus to price growth in the domestic market.
Moreover, historically low unemployment, which reached 3.5% annualized in July of this year, encourages the US corporate sector to further increase labour costs.
In general, the dynamics of labour efficiency in the United States have been volatile over the past few years. Labour efficiency grew before and at the very beginning of the pandemic due to the relatively rapid introduction of new technologies into existing business processes of the corporate sector, as well as due to the transfer of employees to a remote work format. Today, the efficiency is declining amid the entry of the US economy into stagflation or recession, record low unemployment and a rapid inflation acceleration.
Along with capital and its efficiency increase, labour efficiency is one of the leading factors of economic growth. Thus, the current drop in productivity occurs against the background of the return decrease on the additional capital increase and several problems with its quantitative growth. This indicates the likelihood of a further decline in the US economic growth rate and may lead to a sustained recession in the absence of opportunities for additional stimulus due to continuing pro-inflationary risks.