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It's An Old Story: Productivity Rises

Output of chemicals per hour increased in 2006, and unit labor costs fell

by William Storck
February 19, 2007 | A version of this story appeared in Volume 85, Issue 8

THE U.S. CHEMICAL INDUSTRY has now seen 24 straight years of rising labor productivity, or output per workhour. And over the past few years, the increases in labor productivity plus generally lower unit labor costs, or the cost to produce each unit of output, have been much appreciated by chemical producers fighting higher energy and raw material costs.

Using data from the Federal Reserve Board and the Labor Department's Bureau of Labor Statistics, C&EN calculates that productivity rose 1.9% in 2006 from the previous year to an index of 145.6 (all indexes are based on 1997 = 100).

Meanwhile, the increase in productivity for the chemical industry was greater than that for hourly wages, thus producing a much-needed decline in unit labor costs. This measure fell 2.5% to an index of 101.5 after an increase of 0.4% in 2005.

It should be noted that late last year the Federal Reserve Board considerably revised its production indexes, a move that substantially raised the indexes for 2003 and onward. In addition, the Labor Department has made its own revision to employment data. Thus, the productivity measures have changed significantly from those published a year ago in C&EN (C&EN, Feb. 6, 2006, page 17).

For instance, in last year's survey, chemical industry productivity rose 6.5% from 2002 to 2005, the year before the revision occurred. With the revised data, productivity is estimated to have risen 12.6% during the three-year period.

During the same period, unit labor costs based on the old data increased 2.8%. With the new data, the increase was just half of that, 1.4%.

While chemical productivity and unit labor costs improved from 2005 to 2006, the comparable indexes for all U.S. manufacturing did better. Output per hour in that large category rose 2.8% to an index of 164.2, and unit labor costs declined 3.2%.

The year-to-year increase in productivity for the chemical industry was the result of a 2.3% improvement in chemical production and a 0.2% increase in aggregate production workhours, a product of the number of production workers and the hours they work.

Within the industry's individual sectors, all but one sector, pharmaceuticals, saw productivity increase last year. For the drug industry, productivity fell 3.6% as production fell 0.5% to an index of 144.1 and workhours rose 3.3% to an index of 139.2.

Two specialty chemical sectors showed big productivity gains. The biggest increase was in soaps and toiletries, where output per hour rose 7.2% to an index of 161.8 on an 8.6% increase in production and a 1.5% rise in aggregate workhours. This was followed by a 4.5% increase in productivity to 109.1 in paints, coatings, and adhesives. There, output was up 2.6% but workhours fell 1.7%.

Basic chemicals, often viewed as a staid, old business, saw its productivity rise 3.7%, as production increased 2.3% to an index of 108.9 and workhours declined 1.1% to an index of 55.8.


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