American workers became more productive in the second quarter after dozing off in the first quarter. Productivity – measured as total output for a given hour of work – rose 2.5 percent in the second quarter after having fallen 4.5 percent in the first quarter. Aside from quarter-to-quarter choppiness, productivity has been growing at less than one percent for the past 4 years.
By comparison, during the economic glory days of the 1950s and 1960s in the United States, when standards of living rapidly rose and the U.S. became an economic superpower, productivity grew by nearly 3 percent annually.
REALTOR® productivity has been rising recently. Thanks to a housing recovery from 3 years ago, average transactions per REALTOR® have risen from 10 transactions a year in 2011 to 12 transactions a year in 2012 and 2013. Those who are new to the industry are far less productive, with an average of only 3 transactions a year, while those who have been practicing for over 15 years have on average 15 transactions per year.
Real estate brokerages are also getting more productive in terms of utilizing smaller square footage of office space per agent. There used to be about one back-office staff person for about 15 to 20 agents. Now the figure is said to be one back-office staff person for 25 to 35 agents.
Consistent productivity growth will solve many economic problems. GDP will expand faster. The budget deficit will fall more rapidly. Entitlement spending can be better absorbed. And most important, standard of living will rise with more leisure hours. Let’s hope U.S. productivity can kick into higher gear soon and on a consistent basis.
Some industries by nature cannot increase productivity. Classical music concerts always require a certain number of musicians playing the violin and cello. That is, one cannot reduce the number of musicians and get the full effect. A Broadway show is similar – there needs to be a certain number of performers to make it work. In these industries, ticket prices become ever more expensive over time since productivity cannot rise.
ESPN analysis shows that many multimillionaire sports players are said to go bankrupt within 5 years of retirement. This is likely related to having a large entourage. Any unproductive person tagging along with a star and getting paid will drain away dollars quite quickly.
Lawrence Yun is Chief Economist and Senior Vice President of Research at NAR. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1 million REALTOR® members.