Productivity Rises

Each year for more than a decade, labor productivity in the U.S. chemical industry has increased as producers adjust the number of production workers and the hours they work to correspond to industry output, and 2004 was no exception.

Based on production indexes from the Federal Reserve Board and employment and hourly workweek data from the Labor Department, C&EN estimates that productivity in the chemical industry increased 2.9% last year to an index of 127.6 (all indexes are 1997 = 100). This is much better than the 0.4% increase in output per hour of work seen in 2003 but well below the annual increase of 9.3% in 2002.

The increase in productivity for the chemical industry is accounted for by an increased production index and a steady index of aggregate production hours--a product of the number of production employees and the hours they work--coupled with a decline in the number of production workers. Since the average number of production employees fell 0.9% for the year and the average workweek rose 0.9%, the index of aggregate workhours of production was unchanged from 2003.

While chemical productivity increased, unit labor costs increased slightly, instead of declining, which is the ideal. Unit labor costs, calculated by dividing the index for hourly wages by that for productivity, increased by 0.7% to an index of 95.1. During the same period, unit labor costs for all manufacturing fell 2.2% to an index of 81.0.

Last year was the second of increasing unit labor costs for chemicals, compared with six years of falling labor costs for all manufacturing.

Within the overall chemicals category, most industry sectors showed good productivity increases. The largest was in the resins sector, where output per hour rose 5.6% to 134.0. This growth in polymers was sparked by plastics, where productivity jumped 6.9% to 136.9.

The unit labor cost index for the broader polymers category declined 3.4% to 86.7; the index for plastics fell a smaller 2.1% to 83.6.

Basic chemicals also turned in a well-above-average increase in productivity, rising 5.4% to an index of 141.6; and the unit labor cost index for the sector declined 0.8% to 81.4.

It is unfortunate that the Labor Department doesn't break out data for the organic and inorganic subsectors of basic chemicals, but it may be a safe bet that much of the productivity increase came in organic chemicals, where the average production index in 2004 rose 7.4%, while that for inorganic chemicals increased only 0.7%.

It was not all good news for the chemical industry, however. Two labor-intensive sectors--pharmaceuticals and medicines along with paints and coatings--showed declining productivity and large increases in unit labor costs.

The productivity index for the pharmaceuticals and medicines subsector fell 1.0% to 102.9, while unit labor costs increased 6.7% to an index of 129.7.

Meanwhile, output per workhour for paints and coatings fell a huge 11.3% to an index of 93.1, while unit labor costs rose 13.9% to 131.4. This segment can be highly volatile. In 2003, productivity for paints rose 8.9% and unit labor costs declined 6.9%.