chapter  I
Do Low Profits Stimulate Productivity Growth?
Pages 78

Why did productivity grow so rapidly in 1991-92, after declining over the prior three years? Following a 0.5% drop from the fourth quarter of 1987 to the fourth quarter of 1990, output per hour worked in the nonfarm business sector grew 2.3% over the next four quarters and 3.7% during 1992, the largest four-quarter increase since the mid 1970s. Certainly part of the explanation is that productivity is procyclical, and real GDP growth accelerated between the two periods. The surge in productivity during 1992, however, was larger than one would normally expect given the modest rate of growth of real output. I

Many observers have hailed this development as evidence of a new era of more rapid productivity growth. (Robert Gordon provided a good summary.)2 The flip side of this rapid productivity growth, however, has been the snail's pace of job creation: the growth rate of total hours worked equals the rate of growth of output minus the growth rate of productivity (output per hour), so more rapid productivity growth, given output growth, means slower growth in hours, and thus in employment. Observers have also been warning of a new era of slow job growth.